Indices Ready For Another Leg Down

More light appears at the end of the tunnel for stock bears; despite fearmongering, the past four weeks were decent for stock traders with some making profits of around 30%, not bad in light of the current market situation. Overall, this week brought the bullish rally to a halt making way for sellers to take over the market. All that is accompanied by a very promising technical pattern.

Let’s start with the DAX, which has formed a beautiful head and shoulders pattern, this indicates a reversal, hence the end of the bullish movement. The price is still respecting the Fibonacci levels, the price bounced from the 50% level and is heading towards a great support level at 38,2% which happens to also be the neckline of this head and shoulders formation. As long as the price stays above this support level, there’s no legitimate sell signal. Breaking the lower line of the wedge is not enough. What is more, we already had a similar setup at the end of March. Back then, the head and shoulders were also present and everything looked bearish but sellers failed. Yesterday’s strength may indicate that they are about to fail again.

The S&P 500 is in a rather similar situation but it has created a triple top formation instead of a head and shoulders pattern. The price has broken the 50% Fibonacci retracement level and has even threatened the 61,8% level. Unlike the DAX, here the neckline has already been broken and that indicates a sell signal. Naturally, the target for this movement is hitting the 38,2% level. In order to do that, sellers will have to overcome the FED’s money printing and their ‘buy everything’ approach and this can be a struggle as the price does not really want to fall despite the promising bearish setup.

Lastly, we can see an interesting setup on the daily chart for gold; here the price has created a great looking hammer candlestick on the important support level of 1670 USD/oz. The hammer formation worked like a charm and motivated the buyers to lift the price to weekly highs. With the breakout of the mid-term down trendline, the sentiment is definitely positive.