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

Stocks Are Strong But Be Aware Of This Continuing Pattern

By Chris VermeulenETFsOct 26, 2020 02:17AM ET
www.investing.com/analysis/stocks-are-strong-but-be-aware-of-this-continuing-pattern-200542311
Stocks Are Strong But Be Aware Of This Continuing Pattern
By Chris Vermeulen   |  Oct 26, 2020 02:17AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

The last 6+ trading days before the US elections could result in a confirmation of last month’s SPY Dark Cloud Cover pattern or a potential Harami pattern setup. What does this mean for traders and investors?

The Dark Cloud Cover pattern is a very ominous potential Top/Sell trigger in Japanese Candlestick terms. It is a fairly common pattern, like the Engulfing Bearish pattern, that manifests near major peaks in price. The one thing that really stuck out with the current Dark Cloud Cover pattern on the Monthly SPY chart was the size of the pattern. The current Dark Cloud Cover pattern on the Monthly SPY chart spans 39.56 points (nearly an 11% price range). Comparatively, this pattern is very large compared to the more recent price peak ranges.

Over the past 30+ days, we’ve published multiple research articles related to the core technical elements of the SPY chart and the Dark Cloud Cover pattern that set up in September. Pay very close attention to the Fibonacci Price Amplitude Arcs that also show key resistance playing out near the recent peaks. Finally, don’t forget to read our Grey Swan Alert in October’s issue of TradersWorld.

At this point, the SPY needs to decline by 3.5% to 4.5% from current levels to confirm the Dark Cloud Cover pattern. This represents a price decline of only about 11.00 to 15.00 overall over the next 5 days. We believe this is a very important price trigger setup for technical traders. If this setup does confirm, then we would be very concerned that deeper downside price trends may continue after the US elections.

MONTHLY SPY DARK CLOUD COVER SETUP

The Dark Cloud Cover pattern, in this instance, is excessively large compared to previous setups and strongly suggests a major price peak may have already set up in the US stock market. This may translate into a new price trend/cycle that many traders are completely unprepared for. This SPY Monthly chart below highlights the Dark Cloud Cover pattern and what we believe is needed to confirm this pattern. Any extended selloff over the next 5+ days could either confirm this pattern or setup a Harami pattern, which also warns of a price reversal.

Monthly SPY Chart
Monthly SPY Chart

DARK CLOUD COVER ON THE DAILY SPY CHART

Interestingly, the Dark Cloud Cover setup on the Daily chart represents a very clear change in price trend. In order for the Dark Cloud Cover pattern to form, a strong bullish price trend must initially setup the rally to highs. This trend suddenly changes and a deep price correction sets up the “close below the midpoint of the real Body” – creating the Dark Cloud Cover pattern. Once this is set up, we are just waiting for “confirmation” – which is often identified as a lower high, lower low, and lower close on the following candle.

Our research team believes that any continued selling in the SPY over the next 5+ days could prompt confirmation of the Monthly SPY Dark Cloud Cover pattern – as shown on the Daily SPY chart below. We believe the transitional shift of capital before the US elections and the lack of market liquidity may prompt a moderately strong downtrend over the next few days leading into the US elections. If the Dark Cloud Cover pattern does confirm, skilled traders need to prepare for more potential market weakness after the elections.

Daily Spy Chart
Daily Spy Chart

All it takes at this point is a moderate 3.5% to 4.5% downside price move in the SPY to confirm this massive Dark Cloud Cover pattern. The size of this pattern is 400% to 600% larger than the price range peaks in 2000 and 2008, and is nearly 30% larger than the entire trading range between 2015~2016 (the two years prior to the 2016 US elections). That range comparison, alone, should shock skilled technical traders. A two-month Japanese Candlestick pattern includes a price range which is warning of a potential massive top in the markets AND that pattern is larger than the incredibly volatile trading range spanning more than 24 months between 2015 to 2016.

If you are having any trouble comprehending this range comparison, think of it this way… the current price range suggests that one month’s trading range is 100% to 300%+ larger than a full 12 months trading range prior to 2017. It is massive in comparison to historical ranges. This suggests we may see a very volatile price rotation over the next 12 to 24+ months in the US and global markets. One way or another, volatility is here and we better get used to it.

Stocks Are Strong But Be Aware Of This Continuing Pattern
 

Related Articles

James Picerno
Commodities Post Strong Returns By James Picerno - Oct 11, 2021 1

Amid ongoing concerns over inflation, commodities continued to rise, posting the strongest gain for an otherwise mixed week for global markets through Oct. 8, based on a set of...

Stocks Are Strong But Be Aware Of This Continuing Pattern

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other 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, don’t trash it.

  •           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. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. 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.
Comments (2)
Alex Newton
Alex Newton Oct 26, 2020 12:22PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Crying already Mad Max?Ready for the Trump Trounce?
Max Gothe
Max Gothe Oct 26, 2020 3:10AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
After the GOP legislatures defies voters in the swing states based on a bogus claim of 'voter fraud' - and steals the election from Biden, the stock market will crash 50%. See if that fits your patterns..
Dennis Palcher
Dennis Palcher Oct 26, 2020 3:10AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Only ones going to steal election are the democrats
 
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