For the majority of us, by the time many of us hear about the bull run, and this and that stock is a good buy, we buy into a profitable position for a while. Then it turns against us, and we say it’s ok, it’s just a pullback… and then it rallies and be tell ourselves “Phew, I knew it”. The next thing we know, we hear of a harder pullback, and it repeats until we go,”Oh, never mind, it’s just paper losses…”.
Ever too often, the above scenario happens to too many of us. Here are the reasons why:
1. We listen to rumors, “insider” information, recommendations, etc. without really doing the due diligence;
2. We buy when we hear or see the news, and do not understand well enough the market dynamics;
3. We buy and hold with our dear lives, on hope (that it goes back up).
Whichever the above cases might be, it is understandable… that is why there are an array of financial services and tools for anyone to adopt and it requires us to first acknowledge we need help, and really good help. Then the next step is to find the person who is or who has the tool to help. The solutions available are as diverse as the universe; some work, some don’t, some work better than others.
Here, are some technical chart examples where it can be very obvious that markets are turning. Note that these shown are a set of classic real life examples, but are not exhaustive… as in life, there are always variations and diversity.
First up, the S&P500 futures daily chart… there are two orientations of the same pattern over the last few months. Note that last September 2018, when the marked low (point A) was made after a record high and this was followed by a lower high (point B). Thereafter, price surpassed the point A low, and bounced off the lower low, point C. A lower high, point D was made and again, surpassing the low of point C, was the second lower low, point E. This is a wave pattern, also known as a trend change pattern. It consists of a series of lower highs and lower low as described. When point E is lower than point C, that is where the pattern is completed and confirmed of a trend change. You can see what happened after October 2018, where there was further downside.
On the contrary, after a deep parabolic sell off in December 2018, the S&P500 rebounded and may be in the process of forming the same trans change pattern, but in the opposite context. This pattern is depicted in early 2019, and you can see that it is a series of higher lows and higher highs, until point E is above the high of point C.
Interestingly, the Latin America ETF, ILF, has a much larger time frame of the pattern as depicted in the chart. It is still in progress before confirmation which can be expected to happen within the next two weeks or so. Notice also, that there is a downtrending line which price just broke out of. This is deemed very bullish as it is the hypotenuse of a large triangle, suggesting a massive upside potential later on. Note that some entry points are marked for reference and tracking.
Having seen the similar pattern in the S&P500, and the one of the leading emerging market country ETF, ILF, one wonders where the powers of this trend change rally is coming from. A correlated index of the USD is indicating weakness of the USD as well as a possibly high probability trend change confirmation pattern, marked out by the highs and lows, points A through E.
Quite clearly, markets appear to be driven by an expected weaker dollar, making US equities cheaper in valuation, as well as supporting the bull rally of emerging markets, with a weaker USD. Note also that ILF and DXY have MACD crossing over at the significant boundaries, again suggesting that there are legs in this rally or downturn, respectively.
The trend change pattern is also applicable to long term downtrend in the cryptocurrency markets. Below is the TRON/USD chart. Perhaps aggravated by the decline of the USD, together a return of renewed interests, TRON completed a similar pattern since November 2018. Having the faith and patience is key as you can see the point of an entry was taken only in early January 2019.
The above lesson is a sharing of how I look out for trend changes, especially at market tops and bottoms. This keeps the objectivity and increases the probabilities of our successful actions. It has certainly helped me and I hope it does for you too.
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