Fake or Real Stock Rally?

26 January 2019
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All US stock indexes rallied on 26 December and broke the Double Top’s  resistance within a few days after hitting a level that appears to be the support on 24 December 2018.  For DOW,   the stock rose to 24,737 to touch 73% of the drop @ 25,813 on 3^rd December 2018 as shown in the attached.  This 73% is more than 61.8% Fibonacci,  which is a level that many Analysis referred to a level of stock recovery.

However,  if one is observant,  DOW did not have the trading volume when it broke the double top’s resistance line.  To many Technical Analysts,  the double top resistance might  be a “fake” resistance.   However,  if one were to check again,  one would notice immediately volume has surged tremendously when it broke the resistance;  therefore,  it is a not a “fake” resistance but rather,   it might be a “Head Fake Rally” instead.   

“Head Fake Rally (HFR)”?

HFR is actually a “bull trap” rally.   It is a term used  to describe sudden turn in market direction especially when the price has broken or tired to break a resistance,  “tricking” the bulls to buy the stocks.   It is very common to find this kind of "bull trap" rallies in a manipulated stock market.

Examples?

In 2018,  there are 2 such occasions where HFR  were found.  This is on 8 November and on 3 December when DOW hit the 50 MA resistance.   This HFR is about to be formed in the recent rally as shown in the following chart. 

On both occasions on 8 November and 3 December 2018,  DOW broke the 50 MA but the rally failed and went straight down to hit lower lows.   The same kind of HFR were also found in 2016 and 2008 as shown in the following charts.

 

In the above chart,  DOW tried and failed to break above 200 MA.

The above chart shows again that DOW failed to break above the 50 MA or 200 MA and went straight down to test lower lows.   There must be plenty of other such examples that one could also find in other time periods.

Has the Market Really Hit the Bottom?

This must be a million dollar question that many would want an answer.   But this answer will not come until DOW has tested the low or clear the peak.  This topic is discussed here.

Disclaimer:  This article is for information and  educational purposes.   Readers are advised to  conduct their own research and study to make their  own investment decisions.