In the beginning we had new highs marked on the stock markets, and then, with this “Covid-19” called new problem publicly referred to as “pandemic” let the Dow confirm its highly perfect looking Double Top by means of triggering the respective sell-limit at 28,160. What followed was, and I stress that, what is normal for a trend-channel the upper band of which has just been hit holding firm, e.g. the slump through the whole channel’s width. Now, this is Technical Analysis: it’s nothing else than precise prognoses. These consist of target, stop-entry, initial stop, timeframe and the outlined alternative plus the path to follow once triggered. Rule: it’s not about being right, it’s about being effective.
So, with this slump through the primary trend-channel down to exactly where its lower band or “rising-support line” is followed by expectable rebound the Dow has painted a picture of which the color has not yet dried of. By-the-way: Why was this rebound so “expectable”? Right: “Because the rising-support line held firm and thus the uptrend persisted once more. It is intact since … .
This is where we are now: It still isn’t the ongoing painting of a Diamond pattern as again a Double Top has been formed which is about to get confirmed by the respective downside breakout. This means, we might hit the secondary uptrend’s lower band again, or putting it short: 21,750 is not out of striking distance at all.
This Diamond pattern tells me since the beginning of April when the recent rebound set in that a Wave II including a lockdown is expectable, especially if Biden has a chance on winning the race.
Let’s look into other markets, so that (my signature) Technical Analysis shows an overall picture of the financial markets which in turn allows us to draw conclusions on the economic and political landscape of the future.
Let us search for safe havens: Has the flight there taken off or not? We – for a first and slightly superficial overview – shed a look onto the bond market, gold, silver and the oil price.
This looks like a crisis – and fits the overall impression the stock markets are making: bearish or sell!
ICE Brent Future: We have a Rounding Top here, and the major support line has been hit already at 37.00. So, with some safety-area, or call it “filter”, applied, from 35.00 on a slump towards the next major support being the falling-support line or downtrend’s lower band at 21.70 might get undershot once again on re-testing the Covid’s 1st low marked mid-April at 15.98.
Bonds, represented by both the “Bund” and the “T-Note”, i.e. the German and the US 10 years government bonds benchmark future. Rising means, governmental debt is bought. Considering just how much there is out there and the ever more boosted liquidity by literally printing mostly electronic-only money, it says something about either despair or fear or both when their prices are rising – and there’s much more in store in terms of a rally now. For the time being, it will fairly be enough. When the Bund takes out the September rolling-gap and climbs back to where this rally is supposed to start from, i.e. past 176.10 back towards 178.00 it should be good to climb shortly, crossing also the resistance area 177.10 – 177.60.
As this is not really reflected by the T-Note’s recent decline, the Bund’s long-position, if taken on crossing of 176.10 needs an initial stop around 175.50. This can be seen from the T-Note’s Rectangle (blue lines) there’s not much going on pricewise, but as the uptrend’s rising-support line hits in soon it won’t go on like this for long. So, we either get a sell-signal at 135-20 or else a buy-signal on crossing of 142-20 which would fit better to the Bund’s overall look.
Gold has fallen down quite a bit now, but the overall price action still draws a bullish picture with 2,250 – 2,300 being the major target area. At the moment, the secondary uptrend’s inner line is being tested, selling-pressure has diminished. So as long as this line is holding firm at 1,820 the uptrend should get re-assumed soon; else, it’d be a buy at the cheap, should it hit 1,680 one more time.
Let’s keep the EUR/USD rate in mind. Here, after this amazing rally from 1.1000, has followed this congestion as the downtrend-channel’s upper band at 1.1950 has held firm. This now looks as if the USD was to pick up versus EUR and trigger a signal at 1.1590. In that case the respective next major target would be the rising-support line 1.1220 – with 1.1460 and 1.1315 as minor ones.
Along with physical Gold and Real Estate BTC will be the third real safe haven once the inevitable melt-down takes its toll on what’s indicated on the price charts’ y-axis reducing the airy values to what’s about the real value of things. And here, we have a long-term chart that looks just like the one for Gold with its primary uptrend in place the respective upper band of which we can call our “finish line”. This line now hits the y-axis at about 22,100. This is not necessarily the next move towards there, e.g. the expectable rally, what’s in store, as the pivot marked at 13,900 and highlighted by the blue dotted line has not been crossed as of now. As long as this is lacking, it might as well retrace towards 5,000 again. After all, that’s not highly likely at all, so we keep in mind: bullish overall, crossing of 13,900 required for triggering the next major leg up – and some lagging behind gold, thus good chance on sharply rising volatility.
So back to where we came from: the Dow’s Diamond.
A Diamond might be a girl’s best friends, yet for an investor, financial analyst or even trader its shape means trouble: at first the oscillation around what’s considered a fair market price takes the shape of a Symmetrical Triangle open to the right and what follows then is another Symmetrical Triangle completing this pattern that depicts a market sentiment made of uncertainty. Well, what else should you expect when the whole world is changing from a playground we know since childhood to a totally new one?
For orientation: we are now at the second part’s start, the drop into the phase of narrowing oscillation.
As the sell-signal at 28,160 has not been triggered by now which is mainly thanks to the ongoing presidential election and the lockdown which as of now is not yet a total one as the first one has been, there’s a slight chance left on a topside breakout from the current congestion, e.g. the Diamond. This means, a buy-signal could still get triggered at 30,500 paving the way for another leg up in this mainly liquidity or inflation driven advance the stock markets have shown throughout the recent 5 years, but likelihood is low.
Well, still we need to be on alert for such a signal and be prepared to go long instead of short. This 30,500-limit is pretty far away, I know, but it’s the upper band (green line in the build) of the Broadening Pattern the Diamond, once not confirmed by a swift slump, will turn into. In order to confirm this Broadening Pattern a topside breakout at this very rising-resistance line is required. This means crossing this line and triggering another leg up.
To answer the question posed in the headline: We are close to the triggering of another slump. This does not automatically constitute ground to a years-long bear market, but what’s left of 2020 could be clouded by another slump.
Recalling the charts of the Bund, BTC, Gold and Brent we’ve not much in the way of a crisis, we can’t call this an “economic” crisis yet, except for the hint on the USD’s strength versus EUR and also the T-Note that, of-course also for interest-rate reasons, doesn’t perfectly fit the Bund’s safe haven picture. So, some nice breakouts and increased volatility in the above markets is to be expected shortly, and if it’s not a slump in the stock markets that will start with next Monday at the latest, then be prepared for the next liquidity-election-promises induced rally.
Remember: it’s not about being right, it’s about being effective.
Addendum: this is no offer to trade, buy or sell anything, and these are not full-fledged analyses herein only some slightly superficial information on the featured markets based upon which no trade should be considered.