Mystery Chart (11-17-2020)

Steve Strazza
November 17, 2020

From the desk of Steve Strazza @Sstrazza

New Mystery Chart!

For those new to this exercise, we take a chart of interest and remove the x/y-axes and any other labels that would help identify it. The chart can be any security in any asset class on any timeframe on an absolute or relative basis. Maybe it’s a custom index or inverted, who knows!

We do all this to put aside the biases we have associated with this specific security/the market and come to a conclusion based solely on price.

You can guess what it is if you must, but the real value comes from sharing what you would do right now. Buy, Sell, or Do Nothing?

Here’s this week’s chart. We're looking at an enormous base that just recently resolved to fresh all-time highs.

Click on chart to enlarge view.

Notice how before breaking out, the tests of overhead supply at the former highs became more and more frequent.

The more times a level is tested the more likely it is to break, which is exactly what we're seeing in this chart. The reason for this is because with each retest, more supply is absorbed, until there is finally enough demand to overwhelm it... at which point the buyers are in control.

With that said, we don't think this breakout is entirely in the clear just yet.

First of all, we need to see a sustained move higher, not just price poking its head above former highs, as we have now. As such, we'll be watching for some follow-through on the recent move in the weeks ahead.

Second, we always want to see major base breakouts like this confirmed by a surge in momentum, typically in the form of an overbought RSI reading. This is yet to happen, with momentum still in a bearish regime.

Lastly, despite turning slightly higher, the long-term moving average remains more or less flat, evidencing that the structural trend remains sideways.

So, what's it going to be?

Do we want to sell this chart up here and bet on a failed breakout and potential fast move to the downside?

Do we want to buy these fresh highs with our risk-well defined at former resistance?

Or, do we want to sit on our hands and wait for the breakout to either be confirmed by some of the characteristics noted above or fail, resulting in a bull trap?

Let us know what you think!

Tweet me your thoughts @Sstrazza or email strazza@allstarcharts.com and check back at the end of the week to find out why this chart is relevant.

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Allstarcharts Team

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