Having taken a closer look at most of the Swing Trade candidates for next Week I’ve concluded that most FX pairs I’m watching need at least another session to determine their viability. By the same token so do Indices and although we are seeing strong bearish signs we’ve yet to see a confirmed lower high.
Flicking through a number of blogs it’s quite clear that directional opinions are generally strong, but they are also very mixed. In other words, most people appear to be attempting to fit what they are seeing on the charts around their own personal bias.
Quadruple Witching Week generally invites volatility as Options near expiry but right now I can’t pin point an overall directional theme to the Week as a whole to give a reliable edge. Comparing to average Weekly Market gains, some years Quad Witching is notably bullish, but in other years it under-performs average returns although it seems more often the Week’s overall direction is the same as the preceding Week.
On Friday I entered a small DOW short from 12,952 based on the 4 hourly chart as a day trade but I chose to hold it over the Weekend with the view of turning it into a swing trade if the bearish technicals show dominance in the early part of this coming Week.
So a quick look at the charts for possible clues….
4 Hourly shows a trend line back test that rejected price’s advance whilst MACD has plenty of negative divergence but requires a 2nd leg down before positive divergence can begin to form:
4 Hourly again shows a failed retest of the old trend line, in fact, 2 failed retests which coincide with a price congestion area and MACD showing similar traits to that of SPX:
Daily chart shows long term negative MACD divergence (which can continue much longer if the Market remains upwards) and a failure of Friday’s candle to close back above the 20 MA:
DOW Weekly chart shows a hammer (It’s a hangman on the cash chart) which is a bearish candle stick at the top of an uptrend but as with all candle stick patterns it needs confirmation. I would be very surprised if this Week’s candle does not attempt to revisit last Week’s lows, and more often than not when this candle is seen in FX Markets, the following candle will overlap it in it’s entirety, often with an engulfing candle. 3 consecutive lower Weekly closes also offers a strong sign of a Market topping out in the short term, but note that even this is not fool proof as many successful swing trading systems will use 3 lower Weekly closes as an “Add to Longs” signal if this Week’s candle breaks the high of last Week’s candle.
MACD is now also in the process of forming it’s 3rd lower high. In a swing trading system I developed the next MACD cross will be a long term sell signal but there are other criteria that have to be met…. more on that if and when the time comes.
Daily chart again showing a failure of Friday’s candle to close above the 20 MA.
The FTSE Weekly Candle looks particularly bearish and those converging MA’s below last Week’s low certainly look as though they may have magnetic capabilities in the coming Week:
In conclusion it is very clear from the above charts that the Market is showing signs of rolling over at minimum for a 2nd corrective leg down beyond which further analysis can be applied. If these were FX pairs I’d already be betting on the short side, but they are not, they are Stock Market’s fuelled by Central Banks continued injections of cash into the Markets so the technicals we are seeing might not give the effects we are expecting.
Although I have a short position open, my stance will ultimately depend on price action early on in the Week. If we see immediate weakness I’d expect this to continue throughout the Week targeting some of the price areas detailed above, but if we start strongly, the chances are the Week will continue quite strongly but unless any new high has good volume behind it, I suspect it will be a fake-out and very much doubt I’ll be participating on the long side.
If the Market does break to the upside and continue in that direction then this will be a post worth revisiting in the future because it’s clear from the above charts that the technicals are not supporting that outcome.