FXEMPIRE
All
Ad
Corona Virus
Stay Safe, FollowGuidance
World
44,774,935Confirmed
1,179,232Deaths
32,727,721Recovered
Fetching Location Data…
Advertisement
Advertisement
Chris Vermeulen
S&P 500

RESEARCH HIGHLIGHTS:

  • The Transportation Index, has been unusually aligned with the S&P 500 over the past 8+ months.
  • Classic Japanese Candlestick top/sell reversal “Three Rivers Evening Star topping pattern” setting up.
  • We may see a much bigger downside price move where price attempts to find support near 9,800 or 9,200.

The Transportation Index, which typically leads the US stock market by 2 to 4+months, has been unusually aligned with the S&P 500 over the past 8+ months.  Recently, though, the Transportation Index has rallied up to recent new all-time highs (over the past 9+ months) and has rotated lower – below resistance near 11,440 (the MAGENTA LINE on the first chart).  Our researchers are warning us that any continued breakdown below this level could prompt a bigger downside market move.

IS RECENT ROTATION A TOPPING PATTERN OR JUST CONSOLIDATION?

Currently, the US stock market has rolled into a sideways/topping pattern.  After the peak in metals setup near August 7, 2020, the US stock market continued to rally a bit higher, then rotated lower on September 3, 2020.  The Transportation Index rolled over on September 3 but climbed higher less than 5 trading days later – breaking above the highs set before the COVID-19 peak.

We’ve suggested a “Bull Trap” pattern may be forming in the major markets and we’ve urged traders to cautious regarding the new price highs and appearance of a continued upside price rally.  The Bull Trap pattern, sometimes called a “Scouting Party”, happens when price breaks above resistance (or below support) briefly in an attempt to establish a new trend.  If price fails to find support after breaking above the previous resistance level, then it typically rotates lower and collapses back below the resistance level (attempting to find a lower support level).

If our research is correct, the recent rotation in the Transportation Index may suggest a Bull Trap pattern has setup and completed (with price falling back below the 11,440 level).  If this trend continues, we may see a much bigger downside price move where price attempts to find support near 9,800 or 9,200.

This Daily Transportation Index chart highlights our proprietary Fibonacci Price Modeling system and the key resistance level near 11,440 (in MAGENTA).  It also shows the Bull Trap setup near the recent highs.  Past Fibonacci Price Trigger levels near 9,800 and 9,200 suggest any downside price move may target these levels as current support.

This Transportation Index Weekly chart provides a bigger picture look at the Bull Trap setup.  The one aspect of the Weekly Transportation chart that we feel is critical is the 10,815 Bearish Price Trigger level from our Fibonacci Price Modeling System.  This level is key to understanding if and when the Transportation Index breaks a major weekly Fibonacci trigger level.  If price falls below the 10,815 level and manages to close below this level on an end-of-week basis, then we have confirmation that the longer term Fibonacci trigger level has confirmed a new bearish price trend.  Right now, we don’t have that confirmation.

One other interesting pattern that has set up on the Weekly Transportation Index is the Three Rivers Evening Star topping pattern.  This is a classic Japanese Candlestick top/sell reversal pattern.  The term “three rivers” references the confluence of two rivers joining together (think of the strength and force of the water flow) to form a new “third river”.   The descriptive name of the pattern is designed to illustrate the nuanced strength that lies behind this price setup.  A three rivers pattern, once confirmed, is one of the more ominous topping patterns in Japanese Candlestick price theory.  It is usually associated with Doji and Hammer/Umbrella shaped price bars that are equally indicative of a price reversal.

In our past research, we authored a research article about Dow Theory and price trends that we believe should be reviewed by our friends and followers.  It clearly describes the “Down Price Trend” theory and our research team’s believe that recent weakness in the US stock market may prompt a new downside price trend.

At this time, we continue to urge our friends and followers to stay cautious of volatility and price rotation.  The markets are in the process of rotating – certainly.  The issue for all skilled technical traders right now is “will it find support or will it break down and start a new downside price trend?”.  Our researchers believe we know what will happen next, we are just waiting for technical confirmation from price activity.

As a technical analyst and trader since 1997, I have been through a few bull/bear market cycles in stocks and commodities. I believe I have a good pulse on the market and timing key turning points for investing and short-term swing traders. Subscribers of my Active ETF Swing Trading Newsletter can ride my coattails as I navigate these financial markets and build wealth. My research and trading team are here to help you find better trades and navigate these incredibly crazy market trends.

While most of us have active trading accounts, our long-term investment and retirement accounts are equally at risk. We can also help you preserve and even grow your long term capital when things get ugly (likely now) with our Passive Long-Term ETF Investing Signals.  Don’t wait until it is too late – subscribe today!

For a look at all of today’s economic events, check out our economic calendar.

Have a great weekend and stay safe and healthy!

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

 

Advertisement
Don't miss a thing!
Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Trade With A Regulated Broker

  • Your capital is at risk
IMPORTANT DISCLAIMERS
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
RISK DISCLAIMER
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.
FOLLOW US