Brandon Wendell, CMT
Brandon Wendell
A few weeks ago I wrote several articles regarding the Renko charting method. This type of charting can be used to see the larger time frame’s trend on securities and also the broad markets. Renko charting can also be used on smaller time frames in order to enter and exit trades as well.
The US Equity markets have been very choppy since the beginning of the year. To analyze the trend on daily or weekly charts for trading purposes let’s look at them using Renko charts. We know the dominant trend will help traders and investors take positions on the right side of those trends. Trading on the right side of the trend and knowing where the trend is likely to reverse is crucial to success in the markets.
The S&P 500 appears to be holding supply that has been tested once already. You will notice that the uptrend began with higher lows and higher highs. We are not in a downtrend on this index and should not short until a lower low is established after a lower high.
Viewing a larger brick size on the S&P 500 index, we can clearly see the tight range that price has been stuck in for many months. It is no surprise that we have found weakness as price hit the upper portion of the range and is just reverting to the mean as there was no reason to continue making new highs.
At the time I was writing this article, the Nasdaq 100 was flirting with a trend change. There was a lower high already established but the lower low to confirm a downtrend was still pending. There is also a demand zone near 4540 that could cause a small bounce. A trader would wait to short until the bounce pushes prices into a supply zone.
While the Dow has not made lower highs and lows, it is much weaker than the other indexes. The talking heads on TV will blame it on weak earnings, but the supply zone was touched and held before the news was released. This proves that you do not need to watch the news to trade properly.
Just as I mentioned for the Nasdaq, it may be best to wait for lower highs and lower lows in the Dow before looking for longer term shorting positions. Currently, we would only look for intraday shorts as smaller trends have turned bearish.
The market that usually leads major trend is the small cap Russell 2000. This index has already been showing a lot of weakness and a downtrend.
As I write this article, the Russell 2000 is sitting at a demand zone. I would not be surprised to see a small bounce, but with the bearish trend established this should serve as an opportunity to short the bounces into a supply zone.
In conclusion, the markets are showing weakness. They have not confirmed a trend reversal to end the bull-run but have at least shown there is room for movement downward for a couple of weeks. A trader could look at shorting these markets on an intraday basis but would only want to take swing trade shorts if high quality opportunities present themselves.
Neither Freedom Management Partners nor any of its personnel are registered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to trade the strategies or securities. Keep in mind that we are not providing you with recommendations or personalized advice about your trading activities. The information we are providing is not tailored to any individual. Any mention of a particular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation, regardless of whether we are discussing strategies that are intended to limit risk. Also, Freedom Management Partners’ personnel are not subject to trading restrictions. I and others at Freedom Management Partners could have a position in a security or initiate a position in a security at any time.
Editors’ Picks
EUR/USD hits two-day highs near 1.1820
EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.
GBP/USD reclaims 1.3600 and above
GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.
USD/JPY drops back below 157.00, as focus shifts to Japan snap election
USD/JPY is back in the red below 157.00 in the Asian session on Friday. The Japanese Yen recovers ground against the US Dollar amid some profit-taking ahead of Japan's snap general election on Sunday. The preliminary reading of the Michigan Consumer Sentiment Index report for February will be released later on Friday.
Editors’ Picks
EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates Premium
The EUR/USD pair lost additional ground in the first week of February, settling at around 1.1820. The reversal lost momentum after the pair peaked at 1.2082 in January, its highest since mid-2021.
Gold: Volatility persists in commodity space Premium
After losing more than 8% to end the previous week, Gold (XAU/USD) remained under heavy selling pressure on Monday and dropped toward $4,400. Although XAU/USD staged a decisive rebound afterward, it failed to stabilize above $5,000.
GBP/USD: Pound Sterling tests key support ahead of a big week Premium
The Pound Sterling (GBP) changed course against the US Dollar (USD), with GBP/USD giving up nearly 200 pips in a dramatic correction.
Bitcoin: The worst may be behind us
Bitcoin (BTC) price recovers slightly, trading at $65,000 at the time of writing on Friday, after reaching a low of $60,000 during the early Asian trading session. The Crypto King remained under pressure so far this week, posting three consecutive weeks of losses exceeding 30%.
Three scenarios for Japanese Yen ahead of snap election Premium
The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.
RECOMMENDED LESSONS
Making money in forex is easy if you know how the bankers trade!
I’m often mystified in my educational forex articles why so many traders struggle to make consistent money out of forex trading. The answer has more to do with what they don’t know than what they do know. After working in investment banks for 20 years many of which were as a Chief trader its second knowledge how to extract cash out of the market.
5 Forex News Events You Need To Know
In the fast moving world of currency markets where huge moves can seemingly come from nowhere, it is extremely important for new traders to learn about the various economic indicators and forex news events and releases that shape the markets. Indeed, quickly getting a handle on which data to look out for, what it means, and how to trade it can see new traders quickly become far more profitable and sets up the road to long term success.
Top 10 Chart Patterns Every Trader Should Know
Chart patterns are one of the most effective trading tools for a trader. They are pure price-action, and form on the basis of underlying buying and selling pressure. Chart patterns have a proven track-record, and traders use them to identify continuation or reversal signals, to open positions and identify price targets.
7 Ways to Avoid Forex Scams
The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?
What Are the 10 Fatal Mistakes Traders Make
Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.
The challenge: Timing the market and trader psychology
Successful trading often comes down to timing – entering and exiting trades at the right moments. Yet timing the market is notoriously difficult, largely because human psychology can derail even the best plans. Two powerful emotions in particular – fear and greed – tend to drive trading decisions off course.