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.
Click on chart to enlarge view.
Similar to last week’s Mystery Chart, we’re looking at another rounded top this week that’s currently at an inflection point as it meets a well-tested level of support. One major difference is that this pattern formed following a long-term downtrend as opposed to last week’s which was coming off of an uptrend.
We always preach that the more times a level is tested the more likely it is to break. We also like to err in the direction of the underlying trend when it comes to consolidation patterns like this one. Both of these principles are applicable to this chart and would suggest an eventual downside resolution.
Although, a case could also be made that we already had that breakdown and it failed, resulting in a bear trap and this is just a retest before prices react higher again.
So will buyers dig in and defend this support level once again or will sellers finally absorb all the demand at this level and push prices lower?
We think the odds point towards an eventual breakdown but we’re waiting for prices to confirm this before taking action, and that could take some time. For now, we’re on the sidelines watching this one as current prices have been a battleground between buyers and sellers.
Tweet me your thoughts @Sstrazza or email me at firstname.lastname@example.org and check back on Thursday to find out why this chart is relevant.