From the desk of Steve Strazza @sstrazza and Louis Sykes @haumicharts
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 price is inverted, who knows!
We do all this to put aside the biases we have associated with the asset in order to take a view based solely on price behavior.
You can guess what it is if you must, but the real value comes from sharing what you would do right now.
So let us know what it is… Buy, Sell, or Do Nothing?
Here’s this week’s chart:
It’s currently consolidating just above our most recent objective.
So, what are the key characteristics we’re paying attention to here?
- First and foremost: fresh new highs within the context of a killer primary uptrend. That is bullish. Very bullish.
- An extensive basing process. This suggests strong underlying demand and that buyers are in control of the long-term trend. Bullish.
- Momentum has not been oversold since price bottomed. Instead, it’s been relentlessly tagging overbought conditions and confirming the trend. Also bullish.
- Price is at its second Fibonacci extension. We like seeing consolidations occur above these key levels. Not only is this bullish but it allows us to define our risk near current prices, offering us a favorable risk/reward setup.
- Average volume has increased dramatically since the beginning of the year. One could argue this is actually bearish as price has mostly consolidated during this period. We would argue it’s most likely meaningless (which is why we don’t show it on our charts).
- There is an ever so slight bearish momentum divergence at the most recent high. We wouldn’t give this too much weight as it still managed to hit overbought.
So, with this as our backdrop, do we want to sell this chart in anticipation of this divergence confirming, resulting in a failed breakout and fast move lower?
Or, do we want to be long against this level, betting on a continuance of the underlying trend?
We’d love to hear your thoughts!