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?
I’ll give you a hint this week as it might impact how you’d treat the chart here. This is one of the strongest International Equity Markets in the world right now.
We’re looking at a nice long-term base that recently resolved to fresh record highs.
Click on chart to enlarge view.
Price has visited this level and been rejected a handful of times already. Notice the two false starts recently. Although, with the tests occurring more frequently of late, will the third time be the charm?
One thing we know for sure is “the more times a level is tested, the more likely it is to break.”
Here are some things that stick out to us on this chart…
- Price is already at all-time highs so we have a clear level to define our risk against.
- The recent rally to new highs was sparked by a failed breakdown.
- Price has gone sideways for a long-time, but with an upwards bias (series of higher lows).
- Momentum remains in a bearish regime and has not confirmed the breakout to new highs.
- Momentum has been diverging for some time, making a lower low with each new incremental high in price.
So taken together, what’s this all mean?
Do we take a shot on the long side despite the weak momentum characteristics, knowing our risk is well-defined at prior highs?
On the other hand, is the weak momentum and potential divergence a strong enough caution sign that we shouldn’t trust this breakout, and anticipate a failed move?
Or, do we simply let the market decide for us as more data comes in?
We want to know what you’d be doing here.
Tweet me @Sstrazza or email firstname.lastname@example.org and check back at the end of the week to find out why this chart is relevant.