Introducing: [Weekly Recap|03/16] Reviewing the last trading week from a trendfollowing point of view. Today: Indices bouncing off support

Three weeks of trading have passed in 2016 and a lot has happened already. Every major indice throughout the world is still down quite a bit despite the bull action of Thursday and Friday.

The Dow Jones weekly chart is used as an example to describe where we currently stand regarding the possibilty of a trend occurring in the coming weeks.

Dow Jones Weekly

Dow Jones Weekly

While the fractal breakouts were taken with much down pressure and desiciveness to exceed them significantly, the downmove from the very beginning of this year until now stretched away so far from the moving averages (cf. chart), that it is inevitable to get some degree of correction at some point. This has happened now on Thursday afternoon and all throughout Friday last week. Prices had reached major support levels which they couldn’t penetrate any further. After all, markets had moved far away from the balance zone (cf. moving averages) already before coming down reaching these important levels at which price often stops and takes a break.

The question at this point would be if after the break a continuation of the observed bear-action is probable or if a bull move will take world indices back into their balanced state – meaning a sideways move occuring before a new direction of trend can be decided upon.

Dow Jones monthly

Dow Jones monthly

This of course is fully unclear at this point. With the mentioned  heavy pullback upwards divergent bars (see About page) are now showing up at the end of the week. A week closing higher than where it opened the previous monday, while having been down hundreds of points in the meantime, is never a good indication of a continous downmove. Especially when so many support levels seem to stop price from going down more, for now. On the monthly chart it can even be observed that the blue moving average, marking an outer border of the price’s balance zone, has been slightly exceeded, but price retraces now.

Not only fractals mark important levels of support and resistance, moving averages also have that important function.

Combining those two to determine important levels where price is likely to stop, continue or halt, helps to adjust stops and lock in some profits.

This is what will be the case for me regarding the major indices. The seen bull action of the last two trading days last week exactly at the aforementioned areas, is too significant to ignore. Momentum on the monthly chart is reaching 0, telling us that new highs are far away, however, bull moves can be strong if overall a bear market is present.

However, if the latter is the case remains unclear until this point in time.

Prices in global stock markets may take a break from heading downwards as intensely as they have these first three weeks of trading in 2016. Be cautious with wide stops during this market phase, you may get hurt.


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