This chart just looks weak. Indeed it looks like it’s on the verge of another leg down. The long-term chart suggests a potential new downtrend has started. This post will look purely at what the chart technicals are suggesting, not fundamentals.
On the daily chart we can see that after a brutal March sell-off price has climbed back to 170. Looking for chart patterns it appears a bear flag has formed. Moreover, this pattern is very close to completing – as of today we can see price may be about to close outside of the lower trendline. Though this does not guarantee a downwards move is imminent, a negative resolution is the most common. Bear pennants typically see an ABC correction – we can see an ABC wave has likely completed. We also know that bear flags retrace approximately 62% (Fibonacci). This also happens to be right at a zone of resistance.
Other Bearish Signs
If we look for other charts clues they are also suggesting the next move is probably down. Firstly, there is a negative divergence – both volume and momentum (see annotation on the PPO). This shows buying is weakening and is not something we want to see when price is reaching a zone of resistance. If price is to resume an uptrend we would expect to see more strength. All of this is suggesting failure is the more likely outcome.
Weekly Chart – Doesn’t Look Great Either
If we look at the weekly chart it’s not very encouraging.
First thing to notice is that price has clearly broken its upwards trendline. Moreover, price is heading into a zone of resistance in the form of its prior support, now turned resistance. This will be a formidable obstacle – the longer the trendline, the stronger it is. Comparing it to the daily chart we see a potential bear flag that is ripe for completion, right at this trendline.
What other signs can we see?
A number of other signs back up what we’ve seen so far and also suggest this is the start of a new downtrend. Confirming the trend break we can see that both the weekly RSI and moving averages have registered bear signals. All three of these signs are already strongly suggesting more downwards movement is to come. Price is also heading into its 40-week moving average, which again is another obstacle to try overcome, also strengthening what is a pretty rough zone to break through – less likely to happen on weakening volume and momentum.
Overall, both the weekly and daily charts suggest another downwards leg is coming – with a likely test of its recent March low at approximately 110. Unless we see a rapid and strong reversal, the weekly chart is also suggesting weakness is here to stay. If this is the start of a new downtrend then we can not assume support at the March low will hold. We’ll see what happens!