by Chris Vermeulen of The Technical Traders
Clusters of Doji shaped candles have, for centuries, illustrated very clear levels of support/resistance in price action. Whenever multiple Doji candles appear in a cluster-like formation, traders should pay attention to these levels as future support/resistance ranges for price action. In the case of the S&P500 E-Mini Futures Daily Chart, we can clearly see three separate support zones – the highest one being right where price closed on Friday (near 3475).
As the US elections near, we do expect increased volatility to become a factor in the US markets. Currently, our predictive modeling systems are suggesting a Bullish trend bias is in place in the markets. Therefore, we expect the bias of the trend to continue to push higher. Yet, these Doji Cluster support levels become very clear downside targets if increased volatility prompts any broad market rotation over the next few days/weeks. These three levels are :
- 3445~3495
- 3330~3390
- 3185~3225
We are suggesting that IF any deeper market rotation takes place, support near these Doji Cluster levels would likely act as a major price floor – prompting some price support and a potential for a quick upside price reversal near these levels. If the lowest level, near 3200, is breached by deeper price rotation, then a new price correction phase may setup.
Traders should use these levels to prepare for the expected volatility spike as we near the US elections. We believe price will become more volatile as traders/investors attempt to reposition assets away from risk before the elections. We are particularly concerned of a breakdown in the Technology sector related to recent threats to increase liability related to a special clause (230) that protects companies like Facebook and Twitter from the same Publisher Liability as major newspapers.
Given the renewed focus on these social media sites and the content posted/restricted on these sites, it appears they have become the target of investigations and the US Congress. This could lead to some very big volatility spikes in the NASDAQ and the Technology sector over the next few weeks and months. This could result in some very good trade setups as price levels may rotate wildly because of the elections and the pending decisions related to these social media firms.
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Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com
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