Both the monthly and weekly time frames are showing the markets are overextended and a potential reversal bar is also forming on the monthly chart. This simply signals that price will likely retrace (not necessarily turn). The ATR stop on the weekly is 5507.75 but this area is unlikely to support price because the retracement is occurring on the monthly.
However, the daily is indicating that a retracement up to around 5888 is likely, especially with the Stochastics oversold at the moment. As the daily retraces, opportunities for potential shorts will present as long as the 5888 offers resistance (and the higher time frames are indicating that it will act as resist an increase in price, at the moment).
What would be typical signs that the 5888 area will prevent price from going up? A couple of easy to recognize signs would be:
Reversal bar to the downside forming in the 5888 area
A higher high on the Stochastics with a lower high in price
Additionally, with very few market reports this week, volatility may be low. With low volatility in the market, the stochastics can return to normal with very little movement. If this scenario plays out, then the 5507.75 area could act as a support area.
A highly respected trader, trainer, author, and speaker residing in North Carolina. She has over 15 years of experience in trading and in the development of custom indicators. She is a successful author and has published several books on topics like how to use volume analysis, trading binary options and spreads. Gail is also a frequent contributor to Stocks & Commodities magazine. She has been recognized as an authority on Volume Analysis and has been asked to speak at the Traders Expo, Traders World, the Wyckoff Volume Analysis Conference, and Tradestation User Groups.
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