Understanding the trend can get confusing. Especially if you are only looking at short term and completely discounting the longer term trend. The other problem comes when the momentum of the short term seems more bullish or bearish and the longer term which is showing the complete opposite. The ensuing result shows up in many occasions as failed chart patterns. And failed chart patterns can be unforgiving when you are in the wrong side of it. The mistake could have been prevented by understanding the longer term trend. Because it was completely discounted, a strong bias was formed.
What is the technical reason? Longer term trends will always overrule short term trends. Many people entered Sunday 6/20/10 and then Monday 6/21/10 morning’s market with so much bullish bias. In one of the chat rooms I frequent, some funnymentalist were calling for 1200 on the ES before Sunday night would be over. People have to learn to read charts. People have to understand simple technical analysis.
The bounce from previous lows took almost 3 weeks to set up on this daily chart that brought us up from 1032.75 to current high of 1129.50 on 6/20. If you were only looking at the day candles you would be mistaken in thinking that from 6/15-6/20 we were going to try to go further up.
If you just ignore the candles above or ignore the current candle, could you say with all honesty, that there is a lot of momentum to the upside? If you try to appreciate the failure of the close of the 6/14 candle you would also understand from a levels perspective that this red candle would follow.
O no, this is all due to the news!
I won’t argue with you on the news aspects. But you do know what I say. It can’t pop or drop, without it being setup to do so.
According to this chart, it started 6/10 to build up the negative momentum it needed to drop the market. By the time we hit that high, we would be describing that pop on negative divergence. The after the fact people all called HnS!!! The conditions were there before it formed.
And if you consider the length of time the 1hr took to create this negative momentum, it eventually affected the 4hr. The confirmation before we even reached the 1129.50 high, was already set in stone by the 6/15. This is comparative analysis. You can’t be surprised by these moves if you employ these methods.
If you consider the currently weekly status. What is it suggesting to you? We will see a pop sometime soon but we will be doing it on more bearish volume and so a correction will follow.