From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
Check out our latest Mystery Chart!
What we do here is take a chart that’s captured our attention, and remove the x and y-axes as well as any other labels that could help identify it.
This chart can be of any security, in any asset class, on any timeframe. Sometimes it’s an absolute price chart, other times it’s on a relative basis.
It might be a ratio, a custom index, or maybe the price is inverted. It could be all three!
The point is, when we aren’t able to recognize what’s in front of us, we put aside any biases we may have and scrutinize the price behavior objectively.
While you can try to guess the chart, the point is to make a decision…
So let us know what it is… Buy, Sell, or Do Nothing?
Here’s this week’s chart:
The first thing that jumps out is the massive base. If you’ve read more than a handful of our posts, you already know how we feel about our big bases.
If not, here’s a reminder from the great Louise Yamada:
The bigger the base, the higher in space
Notice how price tested its current level from below several times before just recently ripping through those key former highs.
This sure looked to be a valid and decisive breakout, especially considering the confirmation from momentum as RSI accompanied the new highs with an overbought reading.
That brings us to today whereby low and behold, we are right back at that same damn breakout level… The only difference is that this time it’s testing it from above.
So whether you’re a buyer or seller here really just boils down to whether or not you think this key former resistance level will now act as support.
If it does, then this recent pullback is merely a garden variety correction and retest of the breakout level.
This kind of standard price behavior would be a constructive development in which case we’d expect price to carry on higher from here.
On the other hand, if these former highs are violated and do NOT act as support then we could be looking at a nasty failed breakout, in which case a swift leg lower would be likely.
So, what’s it going to be?
Is there enough evidence in the chart for us to make one of these directional bets just yet?
Or, do we need more data before making such a decision?
WE want to hear from YOU.
Are you buying, selling, or waiting for more information?
And as always, be sure to check back later in the week to find out why this chart is relevant.