From the desk of Steven Strazza @Sstrazza
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 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:
We’re looking at a sideways consolidation pattern following a nice leg higher. At first glance, this looks a lot like distribution.
But what stands out the most is that the lower boundary of the range has become a battleground for supply and demand, as sellers keep trying to drive prices lower but buyers continue to successfully defend this key level.
We also have split momentum characteristics as the 14-period RSI recently hit oversold conditions. However, there is a potential bullish divergence in play as it was able to avoid oversold conditions on the latest price low.
We have plenty of mixed evidence with this one, making for a good exercise. We’ve already gone sideways for some time now. Does this suggest that further chop is the higher likelihood outcome? Maybe. Maybe not. Who knows…
What we do know is that sooner or later, price will choose a direction.
So, the question here is simple: Is this a rounding top reversal pattern – in which case we break down from this key level and sellers take control?
Or, did we just experience a failed breakdown? And we know what tends to follow those… That’s right, fast moves in the opposite direction.
These are very different outcomes!
Let us know what YOU are doing… Buying, Selling, or Waiting it out?
Tweet me at @Sstrazza or shoot me an email at firstname.lastname@example.org.
And as always, check back in later to find out why this chart is relevant.