From the desk of Steve Strazza @Sstrazza
New Mystery Chart!
For those new to the 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.
Similar to last week’s Mystery Chart, we’re looking at another long-term downtrend. What’s different about this week’s though, is that buyers recently defended support at key prior lows instead of breaking down.
Another encouraging characteristic is that while price recently undercut its most recent low, momentum diverged positively and remained out of oversold condition. Even more encouraging is that momentum just registered an overbought reading on the rally off these lows, confirming the higher high in price.
But we must remember, the more times a level is tested the more likely it is to break, and this is now the fourth test of these lows.
What to do with a chart like this really comes down to your timeframe. As we have signs of a near-term bottom and a well-defined risk level to trade against, buying this chart in the short-term makes sense. At the same time, we can’t ignore that this is a strong structural downtrend so another retest and potential break of the lows is possible, even likely.
We want to know what you’d be doing here.
Tweet me @Sstrazza or email me at email@example.com and check back on Thursday to find out why this chart is relevant.