Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Custom Index Charts Suggest US Stock Market Ready For A Pause

By Chris VermeulenStock MarketsDec 13, 2020 12:05AM ET
www.investing.com/analysis/custom-index-charts-suggest-us-stock-market-ready-for-a-pause-200547698
Custom Index Charts Suggest US Stock Market Ready For A Pause
By Chris Vermeulen   |  Dec 13, 2020 12:05AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Weeks after the Election Rally initiated a moderately strong upside breakout rally, our Custom Index charts suggest the US stock market may be ready for a brief pause in trending before any new trends continue. Global traders and investors jumped into the US stock market just days before the US elections expecting something big to take place. The rally that initiated just days before the US election pushed our Custom Index charts well into the upper range of the 2016 to 2018 upward sloping price channel. This suggests the US stock markets have ended the downward price reversion and are now attempting to extend into the upward price channel—attempting to resume the upward trending that started after the 2016 elections.

Weekly smart cash and volatility indexes

The Weekly Smart Cash Index, below, highlights the impressive rally recently and the upward sloping price channel that is back in play for price. The highlighted range of the upward sloping price channel is actually the lower half of the std deviation range of the 2016 to 2018 price channel. So, as of right now, the Smart Cash Index price level has yet to really breach the middle of this channel and is still only within the lower half of the channel. Still, the support near the lower boundary of this level has been retested two or three times over the past six months and held. This suggests the lower channel level (the lower heavy BLUE line) is now acting as moderate price support.

Weekly Smart Cash And Volatility Indexes
Weekly Smart Cash And Volatility Indexes

The speed of the recent upside price rally on this Smart Cash Index chart suggests that current price congestion may be an indication that the US stock market has reached a point where it will pause and stall a bit before attempting any new rally. From the recent lows near the end of October to the current highs, the current rally represents a 50% Fibonacci price expansion of the range from the March 2020 lows to the highs in August 2020. The 50% expansion range is a very common Fibonacci level that can typically prompt market price pauses or reversals.

The following Weekly Volatility Index chart highlights a similar pattern – this time referencing the 61.8% Fibonacci price expansion range. The Custom Volatility Index measures broader market trending in relationship to the VIX level. When the VIX level expands (move higher), the Custom Volatility Index tends to decrease dramatically. We can see from this chart that the recovery attempt from the March 2020 lows to the August/September 2020 highs presented a defined upside price range. Applying that range to the current lows that setup just before the US elections shows us that the US stock markets have rallies above the 61.8% Fibonacci price expansion range and contracted back below this level.

Again, we are still within the 2016 to 2018 upward sloping price channel, so we have seen a very clear resumption of the upward price trend recently. Yet, the Custom Volatility Index chart suggests the US stock markets have reached the middle range of the upward sloping price channel and have reached the 61.8% Fibonacci price expansion range – this is a common area where price will stall, consolidate and/or reverse a bit before attempting to establish any new trends.

If the US stock markets attempt to resume any upside price trending, the RED LINE drawn across recent high price levels, will be the upside target/breach level to watch for. The potential for some type of pause in price or moderate pullback is fairly strong at this level in price. Overall, the trend is still solidly bullish and the lower range of the upward sloping price channel is acting as strong support.

Custom Volatility Index Weekly Chart
Custom Volatility Index Weekly Chart

When applying Technical Analysis to current market trends, it is important to understand Fibonacci price structure and how opportunities and risks setup over time. Our Custom Index charts help us visualize how price is reacting to various support and resistance levels as well as help us understand the relationships of price activity to Fibonacci price structure. We believe any pause/pullback in price near current levels will be brief before another upside price trend resumes. The momentum behind the previous rally was quite strong and we don’t believe this momentum will diminish quickly.

Custom Index Charts Suggest US Stock Market Ready For A Pause
 

Related Articles

Tim Knight
10 Most Promising Short Setups By Tim Knight - Apr 16, 2021 5

I’ve just thumbed through the 50 charts in my Bear Pen, and I wanted to offer you the 10 I believed were most promising short setups. AAR Corp (NYSE:AIR): APA Corporation...

Matthew Levy
Earnings Season Is Off To Hot Start By Matthew Levy - Apr 16, 2021 4

“Other than my Cincinnati Bengals breaking my heart, few things are more consistent than stocks higher in April.” As a stock nerd and NFL fan, I love this quote from...

Custom Index Charts Suggest US Stock Market Ready For A Pause

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email