How to Quantify & Identify (real-time) a Trading RangeOne of the most challenging & frustrating tasks for a trader,
is to define with a rules-based (systematic) methodology,
and identify (on a real-time basis),
when a market is in a trading range.
Using the MACD-v both of these goals are achieved.
The market is defined as being as "Ranging"
(one of the Core 7 Range Rules/States)
when the MACD-v is between the -50 and 50 ranges,
for more than 25 bars consecutively.
Community ideas
VIX Index at Lowest Levels Since 2017OVERVIEW
As of 12/12/2023, CBOE:VIX is at 11.82.
There have only been a handful of periods over the last 30 years where stock market volatility is at a similar level, including 2007 and 1994.
Some would argue it implies an increasing level of volatility will be due in 2024.
What is the VIX?
The CBOE Volatility Index, is a real-time market index representing the market's expectations for volatility over the coming 30 days. Investors often refer to the VIX as the "fear index" or "fear gauge" because it is one of the most recognized measures of market volatility.
Here's a breakdown of what the VIX represents:
Volatility Measurement:
The VIX measures the stock market's expectation of volatility based on S&P 500 index options. It is calculated using the bid and ask prices of S&P 500 index options.
Forward-Looking: Unlike many market metrics that look at past performance, the VIX is forward-looking. It provides a 30-day forward projection of volatility.
Market Sentiment Indicator: A high VIX value indicates that traders expect significant changes (volatility) in stock prices, which is often associated with market uncertainty or fear. Conversely, a low VIX suggests low expected volatility and is often associated with market stability.
Not a Direct Stock Market Indicator : It's important to note that the VIX does not measure the direction of stock market movements. Instead, it measures how much the market is expected to fluctuate, regardless of the direction.
Use in Investment Strategies: Some investors use the VIX to help in making decisions about market timing. For example, a high VIX might suggest a market turning point, leading some to consider it a good time to buy, while others might see it as a signal to sell.
VIX Derivatives: There are various financial products, such as VIX futures and options, that allow investors to trade based on their views of future market volatility.
Risk Management Tool: For portfolio managers and sophisticated investors, the VIX can be a tool to hedge against market volatility or to take a position on future volatility.
In summary, the VIX is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. It has become a crucial tool in financial markets for hedging, trading, and investment strategy formulation
Gold Price Susceptible to Test of 50-Day SMAThe price of gold remains under pressure after spiking to a fresh yearly high ($2147), with the weakness in bullion pulling the Relative Strength Index (RSI) from overbought territory.
Gold Price Outlook
The price of gold sits near the monthly low ($1976) as it weakens for the third consecutive day, with a break/close below the $1973 (78.6% Fibonacci retracement) to $1977 (50% Fibonacci extension) region raising the scope for a move towards $1937 (38.2% Fibonacci extension).
Failure to defend the November low ($1932) opens up the $1886 (23.6% Fibonacci extension) to $1897 (61.8% Fibonacci retracement), but the price of gold may track the positive slope in the 50-Day ($1967) should it continue to hold above the moving average.
Need a break/close above $2018 (61.8% Fibonacci extension) to bring $2076 (78.6% Fibonacci extension) back on the radar, with the next area of interest coming in around the yearly high ($2147).
Is Nasdaq 100 Ready For A Move Towards It’s All-Time High?From the beginning of November till today, indices experienced a strong rally, where some made double digit gains. EASYMARKETS:NDQUSD has been one of those, which added around 12% to its value. But that’s, basically, what the index lost in the period between the mid-July and end of October. We can see that the index is now getting a hold near the previous highest point of this year, at around 16062. Although we saw a few breakouts above that hurdle, still, the price remains below it. Although there is a good chance to see further declines, we would prefer to wait for the body of the weekly candle to stay above that hurdle first.
If that happens, EASYMARKETS:NDQUSD may travel further north, possibly targeting the area near the all-time high. First, it may be the level at 16659, which might come into play. That level marks the high of 27th of December 2021. Slightly above it lies the current all-time high, at 16767. That is the highest point of 2021.
To consider a move lower, at least in the near term, a drop below the 15719 zone would be required. That zone is marked by the highest point of September and by the current lowest point of December. If that drop happens, this may clear the path towards a larger correction lower towards the medium-term tentative upside support line drawn from the lowest point of January.
Disclaimer:
easyMarkets Account on TradingView allows you to combine easyMarkets industry leading conditions, regulated trading and tight fixed spreads with TradingView's powerful social network for traders, advanced charting and analytics. Access no slippage on limit orders, tight fixed spreads, negative balance protection, no hidden fees or commission, and seamless integration.
Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, are intended only to be informative, is not an advice nor a recommendation, nor research, or a record of our trading prices, or an offer of, or solicitation for a transaction in any financial instrument and thus should not be treated as such. The information provided does not involve any specific investment objectives, financial situation and needs of any specific person who may receive it. Please be aware, that past performance is not a reliable indicator of future performance and/or results. Past Performance or Forward-looking scenarios based upon the reasonable beliefs of the third-party provider are not a guarantee of future performance. Actual results may differ materially from those anticipated in forward-looking or past performance statements. easyMarkets makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or any information supplied by any third-party.
AMD Surges After Launching AI chip that Could Challenge NvidiaAMD unveiled its MI300X chip, an AI-centered semiconductor designed to challenge Nvidia's global market dominance.
Advanced Micro Devices (NASDAQ: AMD) shares jumped in early Thursday trading after the semiconductor group unveiled an AI-focused chip for the data-center market, which it says could be valued at as much as $45 billion over the coming years.
AMD, which in June pegged the total addressable market for data-center chips at around $30 billion, launched the MI300X chip, designed to support generative-artificial-intelligence technologies. And it unveiled a next-generation semiconductor focused on supercomputing, the Instinct M1300A.
The MI300X, analysts say, could challenge Nvidia's NVDA dominant H100 graphics-processing-unit chip in the large-language-model AI market. Last month, AMD said the new chip could generate $400 million in fourth-quarter sales while the broader family of MI300 semis are expected to see sales of more than $2 billion over the whole of 2024.
Large language models "continue to increase in size and complexity, requiring massive amounts of memory and compute,” CEO Lisa Su said during last night's launch event at the company's Santa Clara, Calif., headquarters. “And we know the availability of GPUs is the single most important driver of AI adoption.”
Advanced Micro Devices shares were marked 2% higher in premarket trading to indicate an opening bell price of $119.12 each. Such a move would nudge the stock into positive territory for the past six months.
AMD last forecast fourth-quarter sales in the region of $6.1 billion, plus or minus $300 million, with gross margins of around 51.5%. That outlook following a mixed third-quarter-earnings report that showed big gains in PC revenue had partly offset the ongoing decline in gaming.
"While AMD acknowledged that its software can be further improved, it has reached the point of being 'good enough' for volume deployment," said KeyBanc Capital Markets analyst John Vinh. He reiterated his overweight rating on the stock following last night's launch event.
"We're encouraged that AMD has released a competitive AI GPU within a massively fast-growing (total addressable market), with endorsements by many high-profile customers," he added.
Technical Analysis
The RSI (14) is at 56.52, indicating a bullish momentum. The MACD (12,26) is at 0.68, suggesting a positive trend. AMD is trading near the top of its 52-week range and above its 200-day simple moving average.
Investors have been pushing the share price higher, and the stock still appears to have upward momentum. This is a positive sign for the stock's future value.
What Leveraged Bitcoin Is Doing In This MoveA derivative indicator I have used for many years to analyze Bitcoin is the BITFINEX:BTCUSDLONGS symbol on Tradingview which displays the number of Bitcoins held in Leveraged Long positions on the Bitfinex platform. This is an indicator of the aggregate long positions held on margin on the platform. It can be used to see what speculative position holders are doing.
Recently, during this run up in the price of INDEX:BTCUSD it seems that the Leveraged positions have begun to unwind by taking profit. They are down -23.5% as of today from the start of November 2023.
Analyzing this chart is different to On-Chain Analysis because the Bitcoin involved are all stored internally at Bitfinex. No new Bitcoin are created (because they cannot be) by taking these positions. Rather the Bitcoin that are custodied on Bitfinex and put up for the ability for other traders to borrow and the owners to earn interest are involved in the count.
A few takeaways:
After months of holding leveraged long positions these traders are taking their profits into this move.
By having less exposure on margin the risk of a liquidation event (and liquidation candle) is diminished.
Leveraged Long positions are net negative meaning that leveraged positions are not the cause of this upward move.
Top traders' methods: A scenario-based view of the marketsThe best traders think in scenarios of market events. They know from experience that the market can do "anything," so it is better to be prepared for any eventuality. This approach is part of mental flexibility. It can take several forms.
Flexibility in approaching the market reduces stress
Flexibility in our approach to the market reduces stress - if we are prepared for different scenarios of events it is certainly hard to surprise us isn't it?
A lot of stress comes from the fact that we like to attach ourselves to our analysis and our rationale, and we feel annoyed when the market acts differently.
If you take several options for the development of events and prepare for each of them - you are already taking into account that, for example, one or even several orders will go to cost. With this approach, you are already prepared for the matter.
You also don't succumb to the illusion of your own infallibility and need to be right. Experienced traders know that being right is useless and even harmful, what matters is making money, not being right.
Flexibility can promote better profits.
Flexibility can promote better profits when you think through several possible scenarios and prepare to... make money on each of them.
- If the market falls, I'll do this, enter here and the TP will be here, and if it rises I'll enter at that place and set the TP like this.
You prepare your psyche to act according to what the market will do - just like a hunter waits for the game to come out in one place or another.
The market's subsequent denial of being "right" can take a toll on your self-esteem, and as you already know, this is an unfavorable phenomenon. Therefore, think in open-ended terms - that the market can rise or fall in different scenarios. Think how you will make money on each of them, and don't be attached to any direction, any behavior and any "right." Think how you will make money on possible ups and possible downs, and don't be tied to any direction, any behavior and any "rationale."
Flexibility over the long term
In the long run, you can simulate for yourself many different profit and loss scenarios. Especially simulating, recalculating a series of losses works positively. It is sobering. If you are prepared for the worst that can happen, and you are able to survive it and come out on top - you are on your way to professionalism.
Be prepared for a series of battles and for the fact that even though you will lose some of them, in the end you must win the war.
Tip:
When preparing to enter the market, think about where you will enter, where you will put SL and where you will put TP. Think about the different ways you can manage an open order: what are your choices? Exit because the system gives a signal in the opposite direction? Exit because the market froze instead of moving in your direction? Exit because the indications of the indicators are changing?
Think through the different possibilities of market behavior. Together with them, think through your reactions and your decisions.
If you prepare in advance - the management of the order itself will no longer require thinking, but only the execution of the strategy adopted earlier. Such a situation is more advantageous, because the decision-making process in conditions when there is no pressure is better.
If you think through your reactions and decisions earlier order management will no longer require thinking, but the execution of the strategy adopted earlier. Such a situation is more advantageous because the decision-making process in conditions when there is no mental pressure is better.
Also think about what can knock you out, pull you away from your plan? What kind of distractions? Pets at home, family, phones? Think about how to eliminate these distractions or how to prepare for them when they occur.
Traits of master traders
Trading, systems, psyche is something unique. That is, every trader is different. At a certain level, traders participate in competitions, struggles with other traders.
At the next level they are left alone, especially the best. And the best of the best start struggling with themselves. They are themselves yesterday's benchmark for what they want to achieve today.
Thus, they enter the struggle with themselves, with this most important opponent.
Therefore, think about it and imitate them. Be better today than who you were yesterday. And tomorrow be better than who you are today.
Your new goal, which will lead you to the level of Master: "I will be the best trader I can be."
Who are PineCoders?People often ask us who PineCoders are. Simply put, we are a group of Pine programmers who aim to contribute to the TradingView ecosystem. Many of the Pine Wizards are PineCoders, yet many PineCoders are not Wizards. We are a relatively small group of just about 40. Our group of programmers contributes to the ever-growing community in many ways. Some may create script publications for users to benefit from, while other members are Pine experts contributing in different, often anonymous, ways. We don't publish a list of PineCoders members because many are happy avoiding the limelight; they do what they do for the love of Pine and our community.
PineCoders strive to represent, in a balanced way, the interests of Pine programmers, script publishers and vendors, and the traders who use scripts on TradingView. Oh, and we have lots of fun together.
█ WHAT DO PINECODERS DO?
Many of you recognize us as the script moderators who operate this account. However, script moderation is only one manifestation of our activities. In the Pine realm, we also:
• Help maintain and evolve the Script Publishing Rules and Vendor Requirements .
• Answer questions in the Q&A forums we support: the Q&A chat on TradingView, the Telegram Q&A group , and Stack Overflow .
• Moderate the Telegram Q&A group and the Q&A chat on TradingView.
• Manage the private spaces where our top programmers share and help improve Pine.
• Design solutions to improve the Pine-related aspects of TradingView.
• Help define Pine-related development priorities.
• Tally suggestions for improvement from Pine users.
• Answer Pine-related support tickets.
• Test new features and changes to Pine.
• Report bugs.
• Publish content from the PineCoders and TradingView accounts.
• Publish a monthly script in TASC and from the PineCodersTASC account.
• Publish Pine-related news in our broadcast channels.
• Select and support our Trusted Pine Programmers for Hire .
• Select the Editors' Picks for Community Scripts .
• Select the yearly Pine Wizards nominees.
• Organize Pinefests , the Pine programming contests .
• Collaborate on the technical documentation of Pine.
█ HOW ARE PINECODERS CHOSEN?
Any member of PineCoders can propose a candidacy. When our management team approves it, they submit the nomination to our members to cast their votes. If the majority of our group agrees, we send an invitation to the user. We select people who are agile in Pine and interested in contributing to our ever-growing community. We keep our group relatively small but diverse, as we believe it fosters a dynamic conducive to productive exchanges and efficient decision making.
█ WHAT'S YOUR RELATIONSHIP WITH TRADINGVIEW?
A handful of users launched PineCoders in 2019 with the support of a TradingView co-founder who recognized the potential of uniting power users with good ideas to improve Pine. The official support from this visionary and our daily collaboration with key TradingView teams are some of the main reasons we can successfully realize our projects.
We founded PineCoders as a volunteer group, and to this day, the vast majority of PineCoders activities are made possible because of volunteer contributions. As our projects evolved and some work required a few of us to commit to internal TradingView activities, those few also added contract work for TradingView to their volunteer activities within PineCoders.
█ WE ARE NOT ALONE
Our group does not hold a monopoly on good deeds. Many other Pine programmers also contribute to the strength and liveliness of our unique community.
With TradingView being so popular, a constant influx of newcomers to Pine want to learn how to enhance their trading practice by programming indicators and strategies. It would be impossible for PineCoders to support them alone, and it's comforting to see that even today, some people still find purpose in volunteering their time and knowledge to help others.
Thank you to all those who help our fantastic community in one way or another.
Cryptographic Truth Final Run (Chainlink) (Re-Upload)The fractal continues to play out like the last Chainlink Cycle.
I started to see a bump and run pattern forming, so I went back to 2019 where we are now in the fractal, and we find the same pattern: a textbook bump and run pattern. There is now a very high chance that we will reverse from this point; we just completed the throwback with a double bottom candle pattern.
My position is still open from 14.6 and being added to the long position under 14.
At the moment, LINK is consolidating under the 1/1 Gann Fan, as you can see below.
According to the fractal, we don't get the real break till the 1st of December; it might look something like this.
The condition for this theory on the fractal playing out being invalidated is if Chainlink loses this lower high structure and breaks this red support trendline.
Business Cycle Rotation Part 3Last year I produced several posts that described an exercise that utilizes long term momentum changes between asset classes and the relationship among asset classes to anticipate the business cycle. That series and parts 1 and 2 of this series are linked below.
Parts one and two of the series described the general methodology, presented the matrix with the raw data and showed the process used to consolidate the raw data and begin to draw conclusions around the economy's position in the current business cycle.
Before I plot the distilled sectors onto a stylized business/market cycle overlay, I plot equities, rates and commodities onto an overlay with the Organization for Economic Co-operation and Development (OECD) Composite Leading Indicator (CLI) for the United States. CLI readings above 100 (dashed red line) suggest economic expansion to come while below the 100 line suggests weakness, and perhaps recession to come. The index is currently below 100 but rising toward the 100 line. So still weakening but at a much slower pace.
To help visualize the cycle I plot 10 year rates (inverted), SPX and the Thompson Core CRB index along with the CLI. Viewed in the manner the cycle that began with the bond top appears to be consistent in terms of sequencing. Rates topped, economy (CLI) topped, followed by equities and finally commodities top as the CLI enters the economic contraction phase.
Fast forward to todays configuration. In this perspective, despite the sharp rally in early November, while there is room for a cyclic rally, there is no sign of a lasting bond bottom (see next chart).
Commodities, while off their lows don't appear to be suggesting a new leg up in the cycle (but may be moving that way).
I think of rates as the first mover in the cycle. To believe that the cycle has turned virtuous I like to see ten year rates make a solid top. The ten year note monthly chart has broken above the multi decade downtrend and above the 3.25% pivot. While a bit overbought in terms of momentum and a small RSI divergence is showing up, the structure from the 2020 low is completely intact. Until I see solid signs of a monthly perspective yield top in the two year and ten year, it will be difficult for me to label this as the kind of high that would lead a change in the economic cycle.
The distilled sectors are placed onto stylized market and economic cycle sine curves. If markets (dark blue curve) are correctly anticipating the business cycle (grey curve) the business cycle is somewhere past peak, and should be expected to steadily deteriorate over coming quarters.
In part 5 we will examine the totality of the evidence and draw conclusions around the current cycle and what it implies for 2024.
And finally, many of the topics and techniques discussed in this post are part of the CMT Associations Chartered Market Technician’s curriculum.
Good Trading:
Stewart Taylor, CMT
Chartered Market Technician
Taylor Financial Communications
Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
Fibonacci: The FundamentalsApplying Nature's Harmony to Financial Markets
From flower petals to far away galaxies, the Fibonacci pattern is found across the natural world.
Fibonacci patterns are derived from the Fibonacci number sequence where each number is the sum of the two preceding ones: 0, 1, 1, 2, 3, 5, 8, 13, and so forth.
Some traders believe the Fibonacci sequence and its derived ratios, like 38.2%, 50% and 61.8% occur in the price movements of financial markets. These ratios are used to predict levels at which assets might retrace or extend their trends.
I. Fibonacci Retracements: Add Precision When Timing Pullbacks
Fibonacci retracements are based on the idea that after a significant price movement, an asset often retraces a portion of that move before continuing its original trend. The retracement is simply a pullback against the impulsive trending move.
Identifying the impulsive trending move is pivotal to drawing Fibonacci retracements. This trending move is known as the ‘impulse leg’ and is labelled X-A on our charts (below).
The Fibonacci retracement tool can be overlayed on top of any impulse leg to provide a series of retracement levels generated from the Fibonacci number sequence.
Fibonacci Retracement Levels:
Past performance is not a reliable indicator of future results
38.2%: This level indicates a moderate retracement. It's often seen as an area where traders might anticipate a reversal or a continuation of the trend.
50%: A key level, suggesting a potential halfway point for the retracement. Traders closely watch this level for potential shifts in market sentiment.
61.8%: Known as the "golden ratio," this level holds perhaps the most significance in the world of Fibonacci – it is the ratio described by Leonardo da Vinci as representing divinely inspired simplicity and orderliness.
78.6%: While not as commonly used as the others, some traders like the 78.6% retracement as it is perceived to offer the greatest potential reward relative to X (the inception of the trending move). However, the deeper the retracement the weaker the trend.
Fibonacci Retracements in Uptrends:
Past performance is not a reliable indicator of future results
Fibonacci Retracements in Downtrends:
Past performance is not a reliable indicator of future results
Uses of Fibonacci Retracements:
Identifying Support and Resistance: These retracement levels often act as potential areas where price movements may pause or reverse.
Planning Entry and Exit Points: You can use Fibonacci retracements to plan entry points for trades during a trend and set exit points to take profits or minimise losses.
Confirmation Tool: When Fibonacci levels align with other technical indicators or chart patterns, they can provide confirmation for trade setups, adding confidence to trading decisions.
II. Fibonacci Extensions: Projecting Price Targets and Beyond
Fibonacci extensions are used to project potential future levels beyond the initial trend. They help traders anticipate where price movements might extend.
Like Fibonacci retracements, the impulse leg (labelled X-A) is key. The Fibonacci trend extension tool can be overlayed onto your impulse leg to generate Fibonacci-based levels to which the impulse leg may extend.
Common Extension Levels: Some commonly used levels are 138.2%, 161.8%, and 261.8%.
Fibonacci Extension Levels
Past performance is not a reliable indicator of future results
Fibonacci Extensions in Uptrends
Past performance is not a reliable indicator of future results
Fibonacci Extensions in Downtrends
Past performance is not a reliable indicator of future results
Uses of Fibonacci Extensions:
Setting Profit Targets: You can use extensions to establish potential price targets, aiding in setting profit-taking levels for their trades.
Predicting Price Reversals or Extensions: These extension levels can signal where a trend might exhaust or where it could extend further, assisting traders in adjusting their strategies accordingly.
Conclusion:
While debates surround the impact of Fibonacci in markets, the core principles—identifying strong impulse legs, timing pullbacks precisely, and projecting targets—form the cornerstone of price action trading. Next week, we'll explore the synergy of retracements and extensions, delving deeper into the captivating realm of advanced Fibonacci patterns.
Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
Social media channels are not relevant for UK residents
The 2023 Broker Awards: Vote Now! It's our duty as a trading community to support each other, no matter our backgrounds or experience levels.
Our annual Broker Awards help traders find the perfect broker for their trading needs. The awards are entirely based on verified reviews from real traders, like you.
The best part? Your votes decide the winning brokers. That's right, real reviews and real connections, all from real traders. Be sure to connect to your favorite broker and write your first verified review, if you haven't already.
That single vote could push your broker to the top of the list. No vote is too small. Get involved, traders!
To learn more about our 2023 Broker Awards check out the the links below. We've got explainers, details, and more for everyone:
1. Our 2023 Broker Awards season is officially open: tradingview.com
2. Visit the 2023 Broker Awards page here: tradingview.com
3. Connect, review and read about all the brokers on our platform: tradingview.com
The TradingView Broker Awards are where the world's best compete to show off their brokering capabilities on an international stage.
May the best brokers win.
Flight Boarding - Grand Theft Auto 6Hey fellow gamers and number-crunchers, gather 'round! 🎮
Big news alert: Rockstar Games is dropping the first trailer for Grand Theft Auto 6 on December 5, 2023! twitter.com
Now, for those who live and breathe gaming, no further explanation needed. But hey, to the data lovers and boomers in the house, let me break it down for you.
Rockstar is the genius behind hits like Grand Theft Auto, Red Dead Redemption, Bully, and La Noire. Flashback to 2013 when they unleashed Grand Theft Auto 5, which turned out to be the best-selling console/PC-only game EVER. Talk about a gaming legend!
Fast forward to now, and GTA 5 has racked up a mind-blowing 185 million units in sales by August 2023. That's across three console generations and PC, making it the cash cow of the entertainment world.
Hold on to your controllers because Grand Theft Auto 6 is gearing up for launch, and the prediction is a whopping $1 billion in sales from the get-go! 🤑 Experts are betting on at least 25 million copies flying off the shelves on release day.
For the financial gurus out there, I've got the deets on TTWO Rockstar Games history prices in my previous analysis. And if you're eyeing the market, the sweet spot for entering the trade seems to be at that red horizontal line at 146 - 150. But here's the cherry on top: I believe we're aiming for a new all-time high beyond 210! 🚀
So, who's ready for the next gaming revolution? 🌟 Share your thoughts below and let the positive vibes flow! 🚀🎉
ADX Trend-Based StrategiesThe Average Directional Index is a highly-respected tool in many traders’ arsenals, capable of measuring the strength of market trends. This article delves into two ADX-based strategies, exploring how to combine this tool with other popular indicators like RSI and EMA for a well-rounded trading system.
Understanding the ADX Trend Indicator
The Average Directional Index (ADX) is a trend strength indicator commonly used in technical analysis. It helps traders identify the strength of market trends, thereby serving as a key component in crafting an effective trend trading strategy.
Originally developed by Welles Wilder, the ADX oscillates between 0 and 100, providing a quantitative measure of trend strength. When its value is below 25, the trend is typically weak or non-existent. Conversely, readings above 25 signify a stronger trend, with values over 50 suggesting a very strong trend. Traders often use these numerical benchmarks to assess whether to enter or exit a trade based on the prevailing trend conditions.
Importantly, this tool does not indicate the direction of the trend; rather, it measures the trend's intensity. Therefore, it is often used in conjunction with other indicators to provide a complete picture of market conditions. This makes the ADX a versatile and valuable indicator for any trader aiming to build a robust trend trading strategy.
Basic Parameters for ADX
The ADX usually comes with a default setting of a 14-period lookback. This means the indicator evaluates the trend strength based on the last 14 bars, whether you're using a daily, hourly, or any other time frame.
In most trading platforms, including FXOpen’s own TickTrader platform, setting up the ADX involves selecting it from the platform's list and then choosing the period parameter. Some traders tweak the period to fit their trading style, although caution is advised when straying from the standard settings.
Interpreting ADX signals is straightforward: a rising value suggests an intensifying trend, while a falling value indicates a weakening trend. This makes it easier for traders to gauge market conditions and determine their trend-following strategy.
ADX and RSI Strategy
The Relative Strength Index (RSI) is often dubbed one of the best trend indicators when used in combination with ADX. When employed together, they form a powerful duo to identify trend strength and market momentum.
For this strategy, both indicators are used at their default settings: a 14-period lookback for both ADX and RSI. Horizontal lines are drawn at 45 and 55 on the RSI window and at 25 on the ADX window to serve as reference points.
Entry
When the RSI rises above 55 or falls below 45, traders wait for the ADX to cross above the 25 level to enter.
It's discretionary for traders to decide whether to enter when the RSI is in overbought (above 70) or oversold (below 30) territories. While these conditions may offer trading opportunities, they can also be riskier as the trend could easily continue.
Stop Loss
Traders often position a stop loss above or below a nearby swing point to protect their trades.
Take Profit
Profits may be taken when the ADX falls below 25, signalling a weakening trend.
Alternatively, traders can opt to exit the trade at a predetermined support or resistance level.
ADX and EMA Strategy
The Exponential Moving Average (EMA) is a type of moving average that responds quickly to price changes and new trends. For this setup, the EMA is configured to a 28-period lookback, while the ADX retains its default 14-period setting. The EMA is essentially another trend filter, acting as a useful baseline for trend direction.
Entry
Traders look for entry opportunities when the price is either above or below the 28-period EMA, indicating the direction of the trend.
Once the ADX crosses above 25, confirming trend strength, traders wait for the price to retrace back to the EMA line to enter the trade.
Stop Loss
A stop loss may be positioned just beyond the EMA.
Alternatively, placing the stop loss at a nearby swing point offers another way to mitigate risk.
Take Profit
Profits might be taken when the ADX falls below the 25 level, suggesting that the trend may be losing momentum.
As another option, traders may choose to exit at a predetermined support or resistance level.
Benefits and Risks of ADX Trend Trading Strategies
Understanding the benefits and risks associated with ADX-based strategies is crucial for traders aiming for consistent returns. Here's a breakdown:
Benefits
Objective Trend Strength: ADX quantifies trend strength, removing subjective guesswork.
Versatility: ADX can be combined with various other indicators like RSI and EMA to create multi-dimensional strategies.
Clear Signals: Thresholds like ADX 25 provide clear, easy-to-understand entry and exit signals.
Risks
Lagging Indicator: Being a trend-following tool, ADX can lag, potentially causing late entries or exits.
False Signals: Market volatility can lead to false ADX signals, especially in lower time frames.
The Bottom Line
In essence, mastering the ADX indicator can equip traders with the ability to discern even stock trend patterns effectively. Its versatility and simplicity mean it’s a great inclusion for trend-following strategies. The strategies given here offer a foundation to work with, but it’s well worth experimenting for yourself and seeing how the ADX works in practice.
If you’re looking to put these trading techniques into practice, you can consider opening an FXOpen account. You’ll gain access to the advanced TickTrader platform, hundreds of markets to choose from, and competitive trading fees. Good luck!
This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
A Traders’ Weekly Playbook – timing the turn We roll into December and many hoping to take a couple of weeks off over the festive season may be reconsidering that call – such is the opportunity cost. Whether one is looking at equities, the USD, gold, or bonds/rates it's all a big momentum play.
In equity land, the US30 is where the big moves are playing out, with the index in beast mode and a mere 1.9% away from its all-time highs. The S&P500 also closed higher for a fifth consecutive week and our US500 index now eyes a test of the 27 July high of 4611, where price action throughout last week suggests further juice in the rally is still possible.
What concerns me is that these markets are rich in positioning, valuation and technically overbought.
Market internals are very frothy, with 57% of stocks closing at a 4-week high, 85% of stocks above the 50-day MA, and 32% of stocks with an RSI above 70 – levels that typically signal an overloved market and a potential reversal. Valuations are also lofty, with the S&P500 trading on 21.4x forward earnings, although that is more of a 2024 story.
Positioning is becoming extreme, with CTAs now max long and shorts having covered hard. Downside protection/hedges have been rolled right off, where the volatility markets have pulled back to the point where many are feeling its cheap and prudent to buy short-dated puts or put spreads.
US rates and swaps are rich (see above), notably on the starting point for Fed easing, with the March FOMC meeting now priced at a 70% chance of a cut. We can also look further out and see over five 25bp cuts priced by the end of 2024. The move in short-end rates has been swift, and the USD has followed in earnest. It suggests that the skew in the risk and the potential direction of travel is shifting, and if any of the US data points this week – notably US payrolls - come in above consensus then USD shorts will part cover and those positioned long of Treasuries may too – equity will be sensitive to any move higher in yields.
So the chase in risk into year-end heats up but what is extreme can become more so, with the market's elastic band getting pulled back to greater and greater levels. On balance, it feels like long risk is still tactically the right position, but the higher it goes the more the ‘January effect’ will kick in and the more pronounced the position squaring and risk drawdown could play out – as liquidity thins out it could be a very lively period ahead.
A turn is coming, but timing it is where the money will be made.
Good luck to all….
The marquee event risks for the week ahead:
ECB President Lagarde speaks (01:00 AEDT) – the EU swaps market prices 20bp of cuts as soon as the March ECB meeting and 114bp (nearly 5) cuts 12 months out – will Lagarde push back on this dovish pricing, and will the market believe her?
Tokyo CPI (Tuesday 10:30 AEDT) – the median estimate is we see headline inflation at 3% (from 3.3%) and core 3.7% (3.8%). This shouldn’t move the JPY unless it’s a speculator beat/miss, but the BoJ will be watching this closely.
RBA meeting (Tuesday 14:30 AEST) – the market prices no hikes at all for this meeting, so it will be down to the tone of the statement and whether the 8bp of hikes priced for the February RBA meeting are correctly priced. It’s hard to see any major deviation from RBA Gov Bullock's recent communication, so the meeting should be a low-volatility event for the AUD or AUS200.
US JOLTS job openings (Wednesday 02:00 AEDT) – the market looks for a slight cooling in job openings, with 9.3 million job openings eyed (9.55m). The USD could be sensitive to this print and prone to short covering if we see above 10m job openings.
US ISM services (Wednesday 02:00 AEDT) – the consensus is that we see expansion in the US service sector, with consensus at 52.3 (51.8). A downside read towards 50 (the growth/contraction divide) could see further buyers in US Treasuries and keep the pressure on the USD. If the data comes out inline or above consensus then USD shorts could cover. The sub-components of the report matter, notably in new orders and employment. If the employment sub-component comes in under 50, then it could impact expectations and positioning ahead of nonfarm payrolls (NFP).
Australia Q3 GDP (Wednesday 11:30 AEDT) – It’s hard to see this influencing the AUD too intently, but it is a small risk for those running AUD exposures over the event. The market eyes GDP at 0.4% qoq / 1.8% yoy.
US ADP employment change (Thursday 00:15 AEDT) – with NFPs on Friday the market should be less sensitive to the outcome of the ADP report. With the consensus at 120K jobs, a big beat/miss could impact the USD, as expectations for the NFP change.
Bank of Canada meeting (Thursday 02:00 AEDT) – the market prices no change in policy at this meeting, so it’s the guidance and tone of the statement that matters more. CAD swaps price an 80% chance of a 25bp cut by the March meeting and nearly 5 cuts priced by end-2024
China trade data (Thursday – no set time) – the market looks for import growth of 4%, and exports to fall 1.5%. The market will look for signs of internal demand, so could be sensitive to any beat/miss in the import print.
US nonfarm payrolls (S at 00:30 AEDT) – the marquee event risk for the markets this week. The median estimate is for around 180k jobs, with the economist's estimates ranging from 240k to 100k. We will also look at trends in revisions to the prior reads, as this will also affect the 3-month average. The market could be sensitive to the U/E rate which is expected to remain unchanged at 3.9% - a 4-handle on the E/U rate would get the market talking and likely hit the USD. Also, consider average hourly earnings are expected at 0.3% mom/4% yoy. I would argue the USD would rally harder on a big NFP print, than selloff on a weaker print.
China CPI/PPI (Sat 09:30 AEDT) – The data falls when markets are closed, so there is some gapping risk in Chinese assets and their proxies. Here the market looks for CPI at -0.2% and PPI inflation at -3%. Amid the disinflationary/deflationary backdrop, there are increasing calls for further monetary policy easing.
GC: Gold Reaches Record High on Hope of Fed Rate CutsCOMEX: Gold Options ( COMEX:GC1! )
Gold prices rallied to an all-time high on Friday.
Spot gold climbed 1.6% to $2,069 per ounce, up 3.4% for the week. Gold price rose to $2,075 mid-session to beat the previous record of $2,072 reached in 2020.
U.S. gold futures also broke new ground. The February 2024 contract of COMEX gold futures settled at a record high of $2,089.7, up 1.6% for the week. On Friday, gold futures trade volume was 259,889 lots, with open interest standing at 498,685 contracts.
Options on the COMEX gold futures also attracted investor attention. On Friday, total options volume was 92,906, up 112% from the prior day. Open interest was 806,297 lots.
For the lead February 2024 contracts, investors bought 19,565 call options and 6,894 put options. A call-to-put ratio of 2.83:1 indicates that investors are very bullish on gold.
Gold prices have been pumped up on investor hype that the Federal Reserve may have completed its monetary tightening policy and could start cutting rates as early as March. How high could gold price go?
Since last year, I have written extensively about gold on TradingView. Let’s revisit the fundamental drivers of the global gold market.
Gold as an Inflation Hedge
Gold has historically been an excellent hedge against inflation because its price tends to rise when the cost-of-living increases.
The US CPI Index has a base value of 100 set at 1982-1984. Its latest reading in October is 307.7. Over the last 40 years, the cost of US goods and services has tripled on average.
The year-end gold price between 1982 and 1984 averaged $378. As of Friday, the bullion gained 447% for the same period. Over the long run, investing in gold does beat inflation.
Gold as a Precious Metal
As a commodity, gold is negatively correlated to the US dollar. Since gold is priced in dollar, a strong dollar raises the cost for foreign investors who must pay more with weakened foreign currency. This reduces the demand for gold. “Strong Dollar, Weak Commodities” is the general theme in global commodities market, gold included.
A closely related theme is “Higher Rates, Lower Prices”. Higher interest rates and Treasury bond yields raise the opportunity cost of holding non-yielding gold. Unlike other commodities, gold is not consumed or used up every year. Therefore, gold mining output is not a major factor in the pricing of gold.
Gold as a Safe Haven Investment
Gold retains its value in times of both financial chaos and geopolitical crises. People flee to its relative safety when world tensions rise. During such times, gold often outperforms other investments. In the past two decades, gold price peaked during the 2008 financial crisis, the 2010 European debt crisis, the 2018-19 US-China trade conflict, the outbreak of COVID pandemic, the Russia-Ukraine conflict, and the March 2023 U.S. bank run.
Gold as an Investment Class
As an investment class, gold competes for investor money along with stocks, bonds, cryptos and money-market funds. Even at record high, gold gained only 13.2% year-to-date, underperforming S&P 500 (+19.6%), Nasdaq 100 (+46.4%) and Bitcoin (+136.0%).
A False Narrative on Monetary Easing
The recent rise in the stocks and gold is largely shaped by the changes in market sentiment. Investors believe that the Fed is shifting gears from restricted to easing policy.
Looking back in the past two years, market sentiment might not be the most reliable gauge of the Fed’s next step of action. The market has called for the Fed Pivot prematurely and incorrectly multiple times. We will need to wait and see what’s happening next.
In his speech at Spelman College in Atlanta on Friday, the Fed Chair said that “the risks of under- and over-tightening are becoming more balanced,” but the Fed is not thinking about lowering rates right now.
Investors focus on the current rate well into restrictive territory, but pointedly ignore the warning that it was premature to speculate on easing rates. The confirmation bias is at work here. They hear what they want to hear and create a new narrative that rate cuts will come sooner.
Pricing in 5-6 rate cuts in a year is very aggressive. The Fed Chair has been accused of being too late to act, seeing inflation transitory earlier on. When it comes to cutting rates, the Fed would be very cautious, and at a very slow and measured pace.
Trading Opportunities with Gold Options
Market fundamentals haven’t changed. Market sentiment, however, has shifted.
The aggressive rate-cut assumption has the effect of lowering the expected interest rates. This helps raise the present value of future cash flows. Hence, stock value goes up.
Lower bond yield reduces the disadvantage of holding the non-yielding gold, and the US dollar weakening makes gold more attractive to foreign buyers.
This bull market is vulnerable. If investors adjust their rate-cut assumptions from 5-6 to 2-3 times, the market could turn nosediving.
However, investors set their sight on rate cuts and will not abandon it until the fact rejects the false narrative. Gold has a so-called “Santa Claus rally” and could continue for a while.
The Fed Chair’s statement could become more convincing if:
• Nonfarm payroll stays strong (December 8th)
• CPI stops falling (December 12th)
• The Fed keeps rate unchanged and emphasizes on fighting inflation (December 13th)
Options on COMEX Gold Futures (GC) could be a cost-efficient and risk-mitigated way to express one’s opinion on how quickly the Fed would cut rates.
Each options contract is based on 1 futures contract and has a notional value of 100 troy ounces of gold. At $2,089.7, each contract is worth $208,970.
For illustration purpose: For the February 2024 contract, an out-of-the-money (OTM) call at 2190 ($100 above futures price) is quoted at 18.80. To acquire 1 call options requires an upfront premium of $1,880 (= 18.80 x 100 ounces). An OTM put at 1990 ($100 below futures price) is quoted at 9.00. To acquire 1 put requires an upfront premium of $900 (= 9.00 x 100 ounces).
Options premium is significantly lower than futures margin, which stands at $7,800 per contract. It’s a fraction of the cost if you were to buy 100 ounces of gold in the spot market.
If the trader buys a call and gold futures goes up, his account will increase in value. Unlike investing in spot gold or gold futures, the payoff in options is nonlinear, determining by the Black-Scholes option model. Similarly, when the trader buys a put and gold futures declines, he would also make a profit.
On the flip side, the trader could lose money if the market moves against him. But the maximum loss is capped at the upfront premium.
Happy Trading.
Disclaimers
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
Explosion In Gold. Where To Next?It has been quite a volatile year for EASYMARKETS:XAUUSD and, judging by end of November and beginning of December activity, it continuous to be a volatile one, as we get closer to the new year. On the 4th of December we saw EASYMARKETS:XAUUSD hitting a new historic high, reaching the area near the 2144-dollar mark. This way the precious metal surpassed its previous all-time high, near the 2082-dollar mark, reached in April of this year. That said, before the EU market open on the 4th of December, the yellow metal fell back below that previous high and at the time of writing it is struggling to get back above that barrier. If EASYMARKETS:XAUUSD continues to trade below that 2082 zone, we may see a slight correction back down. That said, we may class that correction as a temporary one, before another leg of buying, as long as the price stays somewhere above a long-term tentative upside support line drawn from the lowest point of November 2022.
As mentioned above, if the price is able to stay somewhere above the 2082 hurdle, this may attract more buying interest, possibly dragging EASYMARKETS:XAUUSD towards the newly-established all-time high, at 2144. If that hurdle gets broken, this will confirm a forthcoming higher high, placing the commodity into an uncharted territory. That’s when we will use the help of our Fibonacci extension tool, in order to try and find our next possible resistance target. As we can see from our chart, the next potential target is at 61.8% extension, which is around the 2180 level.
Alternatively, a drop back below the 2048 zone could signal a possible larger correction lower. In that scenario we will start aiming for the 2009 hurdle, marked by the highest point of October. If that hurdle is not able to halt the slide, we may see EASYMARKETS:XAUUSD drifting below the psychological 2000 area, towards the 1933 level. That level marks the lowest point of November.
Disclaimer:
easyMarkets Account on TradingView allows you to combine easyMarkets industry leading conditions, regulated trading and tight fixed spreads with TradingView's powerful social network for traders, advanced charting and analytics. Access no slippage on limit orders, tight fixed spreads, negative balance protection, no hidden fees or commission, and seamless integration.
Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, are intended only to be informative, is not an advice nor a recommendation, nor research, or a record of our trading prices, or an offer of, or solicitation for a transaction in any financial instrument and thus should not be treated as such. The information provided does not involve any specific investment objectives, financial situation and needs of any specific person who may receive it. Please be aware, that past performance is not a reliable indicator of future performance and/or results. Past Performance or Forward-looking scenarios based upon the reasonable beliefs of the third-party provider are not a guarantee of future performance. Actual results may differ materially from those anticipated in forward-looking or past performance statements. easyMarkets makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or any information supplied by any third-party.
Have you had your coffee yet?We already know that coffee beans have always been one of the most traded commodities in the world, specifically second, so why the sudden interest again?
Figure 1: Summary of World Coffee
In recent years, global consumption has increased at a higher rate than production due to pent-up demand. This rather large deficit in balance in the past two years puts the coffee market in an interesting spotlight. Nonetheless, arabica beans continue to be the more favored selection, with South America as the central production region, driven mainly by Brazil.
Gaining Access to This Market
Amongst various coffee derivatives, a coffee futures contract is the most common way to trade coffee. The 4/5 Arabica Coffee Futures (ICF) listed by Brasil, Bolsa, Balcão (B3) Exchange is an example of such contracts.
For those unfamiliar with futures contracts, it is a legal agreement to buy or sell a specified asset at a predetermined price for delivery at a specified time in the future. For the ICF contract, the asset is 100 bags of 60 kilograms filled with grade 4-25 or better Arabica coffee bean produced in Brazil that is meant to be delivered in the city of São Paulo, Brazil, or a B3 accredited warehouse.
The ICO’s Grading and Classification of Green Coffee states that “coffees of the highest altitudes are denser and larger in size than those produced at lower altitudes.” Loosely speaking, larger beans with higher density are better.
The grade indicators refer to the number of defects found in a 300g sample. To achieve a 4-25 grade, the coffee must be classified by B3 in accordance with its rules and regulations. This grading system is more specific to Brazil-produced beans. Other coffee-producing countries have other specifications and classifications.
The Trampoline Effect
Figure 2: Supply & Demand Factors
Historically, the ICF future prices resemble that of a trampoline, with major support lines at the 124.55 and 103.60 levels. Let us explore some of the factors that caused these jumps previously; bear in mind that consumption of Arabica beans has been steadily increasing since the 1990s.
S1: Poor weather conditions in South America in 2010
Brazil suffered from poor weather conditions and faced significant problems in meeting the expected crop yield. Large producers were also considering hoarding their stocks. The problem was further exacerbated by the backdrop of record low arabica stock levels since the 1960s.
S2: Drought in Brazil in 2014
Similarly, poor weather conditions caused uncertainty in crop production for the harvest year and pushed prices up.
S3: Drought and frost in Brazil 2021
The effects of drought followed by a severe wave of frost in Brazil wiped out its coffee production. This was accompanied by increased freight costs and shipment issues caused by Covid-19.
S4: Harvest Conditions
Evidently, weather conditions pose significant downside risks to the coffee supply. Moreover, occasional coffee leaf rust coupled with increasing demand has caused spikes in coffee prices.
USD and Coffee
Figure 3: ICF and DXY (Inverted)
As with many commodities, coffee tends to move inversely with USD. This is especially so since most coffee contracts, like the ICF, are priced in USD. When the dollar rises, coffee becomes more expensive in non-USD terms and can cause international demand to fall, and vice versa.
Figure 4: ICF and BRLUSD
This relationship becomes more apparent when compared to BRLUSD. Our thought process:
Local Brazilian producers and manufacturers traded these ICF contracts as a hedging tool. During the physical delivery of the beans, these market participants would then have to do a currency exchange. Consequently, the impact of BRLUSD rates would have a larger impact on them.
Similar Coffee Futures Contract
Figure 5: ICF and KC
The two contacts’ underlying assets - arabica beans - have similar grading standards. Consequently, macroeconomic factors are likely to have similar impacts on the two contract prices. The prices between the two contracts exhibit a very strong positive correlation. We can then create a spread with ICF – Coffee C (KC) Futures Contract.
Figure 6: ICF - KC
ICF is quoted USD per bag for a contract size of 100 60kg bags, while KC is quoted USD cents per pound for a contract size of 37,500 lbs. We can then create a spread with ICF1!/60-KC1!/0.4536/100, by converting both contracts to the same base units.
The spread setup indicates that KC generally trades at a premium compared to ICF. This could be attributed to several factors, a notable one being the higher liquidity preference investors tend to have for the KC contract, which might reflect a broader international preference. It is also worth noting that ICF requires Brazil-produced arabica beans, while KC comprises beans from other countries. This could explain the uncanny coincidence between the upside bias in spread movements (Figure 6) occurring in periods identified in Figure 2 – supply-side factors driven mainly from the Brazil side.
Putting into Practice
Enough has been said about coffee; you must be wondering how we then use this information to set up trades. Here are some ways for consideration.
Case Study 1: Directional Driven
By considering current macroeconomic factors on coffee, to express a “quieter” outlook on coffee, an investor could sell the ICF future contract (ICFH4).
At the present level of 206.00, with a stop-loss above 219.00 – a conservative resistant line – it brings us a hypothetical maximum loss of 219.00-206.00 = 13.00 points.
As shown in Figure 2, if ICF1! Reverts to major support line 124.55, a hypothetical gain of 206.00-124.55=81.45 points.
Each ICF futures contract represents 100 bags; the value of each point move is USD100.
However, as we approach the main harvest period for Brazil, May to Sep, it is of paramount importance for the investor to keep a watch for any potential hiccups that could negatively affect the harvest yield. Furthermore, this is likely to be a medium-term macro-driven strategy.
Case Study 2: Spread Driven
Regarding the ICF-KC spread currently trading at the upper bound, an investor with a bearish short-term view that the spread will trend downwards could sell ICF futures contract (ICFH4) and buy KC futures contracts (KCH4).
At the present level of 206.00 and 169.95 for ICFH4 and KCH4, respectively. Following the formula above, the spread will be at –0.31336 points.
Setting the resistance at the Fibonacci 50% ratio, we have a stop loss at -0.25, which brings us a hypothetical maximum loss of -0.25-(-0.31336) = 0.06336 points.
Setting the support at the Fibonacci 38.2% ratio, we set our take profit at -0.40, which brings us a hypothetical gain of -0.31336-(-0.40) = 0.08664 points.
The value of each point move in ICFH4 is USD100, while KCH4 is USD375.
Conclusion
There are various methods to create opportunities for investors, depending on how the investor would like to view the market or what other financial assets to pair up with coffee futures contracts. What we have covered in this article merely scrapes the tip of the iceberg, and we hope investors keep a creative mindset and explore other potential options.
Disclaimer:
The contents of this article are intended for information purposes only and do not constitute investment recommendations or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description.
PLTR Has Reached Key Upside Levels: Tighten StopsPrimary Chart : Palantir Technologies Inc. NYSE:PLTR on a daily time frame with key Fibonacci Levels drawn as well as support, resistance, the 21-day EMA, and a critical VWAP from the bear-market lows of December 2022
Palantir Technologies Inc. NYSE:PLTR , once a tech darling of the 2020-2021 bull market in equities, has achieved a substantial retracement now of its vicious 2021-2022 bear-market decline. PLTR has been a popular stock ever since going public via a direct public offering, the same type of registered share offering used by NYSE:SPOT and Slack Technologies, LLC, which is now owned by Salesforce. PLTR provides data-analysis and AI technologies to large government agencies, including defense agencies and branches of the military, as well as large corporations.
Despite periods of consolidation—especially from August 1, 2023, to November 1, 2023, PLTR has been in a primary-degree uptrend since its bear market low on December 27, 2022. The uptrend has been mostly strong and supported by the volume-weighted average price anchored to the bear-market low (green), which is shown on the Primary Chart above.
Price has also run into a major long-term Fibonacci level at $20.74. This level is also shown on the Primary Chart in gold. Using a logarithmic scale, this Fibonacci level at $20.74 is a 61.8% retracement of the all-time high to the December 2022 low. Above this level suggests more upside. Below this level suggests either (i) consolidation, or (ii) resumption of the downtrend (if key long-term support levels break decisively).
When plotted on a linear chart, PLTR has also reached (and stalled at) a critical Fibonacci retracement of its entire bear-market decline. This .382 Fibonacci retracement at $20.85 is often where bull flags or bear flags consolidate within a given trend. Some might view this level as a decisive level for the bbear case given that 38.2% of the bear-market decline has been retraced, and therefore, rising above this level would suggest the uptrend has further to climb (e.g., $25.46 at the 50% retracement shown in green below). So this level at $20.74 / $20.85 (whether viewed as a .618 Fibonacci retracement or a .382 Fibonacci retracement) is crucial to monitor.
Supplementary Chart A
This post argues that the primary uptrend looks as though it has become extended. Does this mean the high has been reached for the this particular uptrend? It's not wise to call the end of a primary trend until technical confirmation has occurred. Picking a long-term high is nearly impossible. The negative divergences on weekly and daily time frames are shown in the following charts:
Supplementary Chart B
Supplementary Chart C
Supplementary Chart D
Supplementary Chart E
Supplementary Chart F
So momentum has definitely slowed in this AI / tech / data-analysis name, and negative (bearish) divergences have arisen. At a minimum, this could signal a period of consolidation lies ahead in the first half (1H) of 2024. The supplementary charts show the divergences one should watch carefully. This may provide a reason for bullish position traders and investors to tighten stops. And if key levels snap decisively, such as the $16.36 level or the August 2023 supports at $13.68 or the VWAP (green) from December 2022, then watch for a retest or break of lows.
