skyjuiceiswater: June 2022

22 February 2022

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1) Bear Flag in DOW (22 February 2022)
Update: 25 February 2022
Update: 1 May 2022
2) Top Island Reversal (Singapore Airline)

3) Symmetrical Triangles (HSI, SSEC, Crude Oil)

Update: 9 March 2022

Update 23 April 2022

4) Head and shoulder pattern

Update 26 April 2022 (SSEC)
Update 10 May 2022 (DOW)
Update 24 May 2022 (DOW)

Update 12 June 2022 (DOW)

5) Candlestick Gap Covering

Update 23 June 2022 (DOW-Deciding Direction)

Update 27 June 2022 (Covering gaps)

Update 28 June 2022 (Failure to Cover Gaps)

Update 30 June 2022 (Covering Gaps Successfully)

Update 07 July 2022 (Possibility to cover leftover gap)

Update 11 July 2022 (covering leftover gap)

Update 21 July 2022 (covering leftover gap)

Update 28 July 2022 (covered leftover gap)

Update 1 August 2022 (covered leftover gap)

6) Support and Resistance

Update 16 July 2022 (SIA Support and Resistance)

Update 6 August 2022 (S&P 500 Resistance)

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# Bear flag; trading pattern, how to trade, market rise, fall

There are lots of articles written about this topic. Most of them are just descriptive although some come with graphs and charts. There are quite difficult for laymen to understand. This article will intend to make this learning as simple as possible. It will use animated charts where possible to illustrate; at the same, it will chart the stock direction using the present market prices.

1) Bear Flag in DOW (22 February 2022)

The first pattern that appears today is a bear flag as shown.

This chart pattern appears frequently whenever there are serious corrections where the market falls more than 5% from its peaks. In the recent market correction, DOW fell by about 6% from its all-time peak of about 37,000. It then recovered about 3% just to see another fall of 4% to the present position of 33,500. This time, it made a "bear flag pattern" as shown above.

How Easy to Spot & How to Trade?

The bear flag pattern is easy to spot and trade. One could usually tell where the price will go and what will be the target price. In this case, the first target price is around 32,000 as shown in the following animated chart

How will it go down?

Stock will not fall in a straight line unless there is sudden bad news spreading such as the sudden and unexpected failure of a financial institution or the breakout of war; otherwise, the market will always want to test and challenge the price falls. When this happens, the stock price will want to test whether it will climb back & cross the lower trendline of the flag as shown red in the following chart:

Recently, we have had the Ukraine crisis that sparked the market price correction. But this war between Russia and Ukraine has not developed into war yet. There is a pretty good chance that the market will want to test and challenge the price falls.

Update: 25 February 2022

As expected, the market fell last night to touch the target price of about 32,300 last night briefly. However, Ukraine and other crises are still very real out there. It is expected that the market will revisit the lows again.

Update: 1 May 2022

DOW formed another bear flag in March. It could have recovered if it could stay above the red trend line as shown in the chart below. It struggled and made several attempts but failed so far which made it more vulnerable. One would expect DOW to break its support @ 32,600 soon to make another new low.

2) Top Island Reversal

A top island reversal pattern was spotted for Singapore Airlines. It is a blue-chip company in Singapore Stock Exchange (SGX). The pattern has shown up in the daily chart as well as in the 4-hour chart as shown below.

How To Identify?

It can be identified by the island it has formed. Usually, when the price gaps up, there is always a rise in the trading volume, though in this case, the rise is not significant as shown in the following chart.

What to look for?

For those who are looking to short Singapore Airlines, it is the best time to do so when the price breakaway from the island. One should place a stopgap price at the breakaway point of the last candlestick.

For those who are looking for an opportunity to enter the market again, one will have to look for a bottom reversal pattern. This is usually shown up in either an exhaustion candlestick (as shown above) or an exhaustion gap candlestick with a significant increase in volume. It can be also in any other reversal pattern.

Update: 9 March 2022

SIA failed to keep its momentum because the Ukraine war spiked oil price hikes recently. Oil prices went up by 35% in a short span of about 2 weeks. It could cost aero fuel to go up in price. The SIA stock price fell immediately until it hit another exhaustion candlestick yesterday. If there is no further hike in fuel oil pricing, SIA might recover from here. Whether it will "leap & bound" to a much higher level will depend on the future oil prices.

3) Symmetrical Triangles

The Symmetrical Triangle is an interesting pattern that is often seen in stock trading. One can easily draw such a pattern by linking the peaks with a trendline and the troughs with another trendline. The following picture shows 3 types of Triangle patterns: the Symmetrical, the Descending and the Ascending Triangles

A symmetrical triangle pattern can be found in many different time intervals. But it is most pronounced in the monthly interval for some reasons.

Examples?

A symmetrical triangle pattern was presently found in the following exchanges

1. Hang Seng Index (HSI)

2. Shanghai (SSEC)

3. Crude Oil WTI Futures

What to Expect?

One would expect the price of the stock or index to break away from the triangle. This will occur whenever the price break-away from the lower or upper trendlines that have been trapping the stock/index prices as shown in the above examples.

What are the Target Price to expect?

For the bottom break-away in the case of HSI, one could often expect the target prices to be determined by projecting the price differences between the peaks and the lower trendline as shown in the following example. In this case, the 1st target price is 18,500 and the second target price is 12,500 if the first target price cannot hold the falling price.

The above example can also be used for the top break-away symmetrical triangle patterns or other similar kinds of patterns. Usually, when there is a break-way from the triangles, there should be an increase in trading volume.

Update 23 April 2022

HSI briefly hit the 18,500 on 15 March 2020 but rebounded on the second day to hit 22,500 on 4 April 2020. Nevertheless, it failed to recover and crept back to the symmetrical triangle. Therefore, one would expect HSI to revisit the 18,500 again. If that level cannot hold the fall, very likely HSI would want to test the next support level which is 12,500.

4) Head and shoulder pattern

Head and shoulder is another interesting pattern that is often found in stock and indexes during the bear market or when the stock or market price has been “pushed” artificially above the unsustainable price limit.

Characteristic

The pattern consists of left and right shoulders, a head & a neckline. A typical pattern is shown as follows. The neckline need not always be in the horizontal position. The neckline often appears as a rising trend line

Example?

This Head and Shoulder Pattern was recently found in the Shanghai Composite Index as shown. Ir could be found also other China markets like the Shenzhen Index although the pattern could be slightly different.

What to expect?

One would expect the stock or market price to pick up steam in the beginning with market players all rushing in to take a position, waiting for the price to rise. As soon as the price has been “pushed” to the peak, the market players will expect a correction to follow. They would stop buying. However, when they see the market isn’t correcting as much as they have expected, they started the buying spree again. This buying will push the price to form the right shoulder By now, most of the market players remain a "waiting and see" attitude and would start selling if there is unfavourable news emerging. If there are lots of them dumping, the market volume will increase; if not, the market will retest the low and challenge the broken neckline as shown in the case of the Shanghai chart.

What is the Target Price?

In the case of head and shoulder patterns, the target price is usually projected from the neckline's break-point as shown in the above picture. That line used for projection is drawn connecting the highest peak in the "head portion" to the neck-line as shown. In this case, the target price is around 3,050.

Update 26 April 2022

As expected, Shanghai Composite Index (SSEC) broke the support @ 3.050. This support was broken in one single day on 25 April 2022 when SSEC shredded about 5.1% to end the day @ 2,928. Because SSEC broke another Head and shoulder line on its way down as shown in the attached chart below, it is expected that SSEC will not recover from the fall until it has tested the next support @ 2,650. And if that support cannot hold the fall, one would expect SSEC to fall further to test the other support @ 2,500.

Update 10 May 2022

Earlier when DOW formed a bear flag, we expected DOW to test 32,360 as shown here. Since then, DOW recovered but it made a dead cat bounce to come back and test this support again last night. Except this time, it has broken the 32,360 support with a fresh Head and Shoulder pattern as shown attached, it is likely therefore for DOW to test the support of 31,250 (marked 2), failing which, it will test 30,250 (marked 3) & might go down further to test other supports.

Dow made more head and shoulder (H&S) pattern as it went down. It has test 31,250 recently and retraced back as shown. It is now testing the H&S pattern. If it fails to overcome the resistance at the H&S, it will want to sink again to test 30,250 or the other lower supports.

Update 12 June 2022

On its way down, DOW made another H&S pattern as shown. This pattern appears to be quite reliable as its H&S resistance has been tested & challenged before going down.

The next target is likely to be below 30,000 as indicated\

5) Candlestick Gap Covering

Candlestick gaps are often created when there are announcements of special trading news that might affect the stock prices; for example, the recent news about the US's inflation hit 8.6%, causing the market to create a candlestick gap last Friday, 10 June 2022. Another candlestick gap was created the next trading day on Monday, 13 June 2022 as there were fears about markets falling into the Bear territory.

There are about 4 types of gaps found in trading charts; namely, the breakaway gap, the exhaustion gap, the common gaps and lastly, the continuation gap as described in this webpage.

As the recent two candlestick gaps are caused by fears, they might be covered up soon when the fears go away or the events are overtaken by other events.

Update 23 June 2022 - Deciding Direction

DOW made advances after hitting the support @29,800 as shown in the attached chart. DOW is now stuck between covering the candlestick gaps and the testing of the next target @ 28,700 support. This target of 28,700 was set earlier by the red H&S line. The decision on which direction DOW would move will probably depend on how the US economy will be doing in the next 2 weeks.

Update 27 June 2022 - Covering Gaps

DOW has decided to cover up the gaps. The first gap ("gap 1") was covered on 24 June as shown. Then there were reports about corn, Wheat and Soy Bean prices dipping about 20%. At the same time, oil prices and prices of other commodities were seen dropping. It is like the economy has suddenly turned better.

In view of the above, it is likely that DOW would want to continue going ahead to cover the other gaps ("gap 2"). It would also try to break the declining trendline; failing which, it would back down to cover the "gap 3" as shown.

Update 28 June 2022 - Failure to cover Gaps

DOW jumped over 1% yesterday when it opened at 9:30 am. it was all ready to cover gap2 until the news about the bad CB Consumer Sentiment index came out at 10:00 am.

That piece of bad news sent DOW tumbling down over 700 points. DOW ended with an index of 30,950 or a loss of about 500 points for the day.

DOW has yet to decide where to go next as it left Gap 3 uncovered. It is very likely that DOW would cover Gap 3 next.

Lesson: Candlestick gap covering will depend much on stock market news. This is especially true when there are counter-directional gaps to be covered at the same time.

Update 30 June 2022 - Covering Gap Successfully

DOW managed to cover gap 3 successfully today. In doing so, it almost created another candlestick gap on the way. But it managed to cover the gap nicely with a neutral bullish candlestick before the closing time.

Going forward, the covering of gap 2 will depend on how the economy will perform. But it would appear unlikely for the gap 2 to be covered soon without DOW having to create another new bottom. This is because the economy is NOT expected to look any better with the Ukraine war still going on and the Fed isn't ready to remove the QT & the rate hikes.

Update 7 June 2022 - Possibility of Covering Leftover Gap

The strength of US stock suggested that it might have decided to go and cover the leftover gap as shown before the FOMC meeting on 27 July. This is provided with the economic news in favour of such a move. The job report tomorrow will likely tell if this is a possibility.

Update 11 July 2022 - Covering Leftover Gap

Dow struggled to cover the leftover gap last week. It might be waiting for the coming CPI number to be reported at 8:30 am EST on Wednesday, 13 July.

The following shows 2 charts: The job report/CPI numbers and the DOW chart with the CPI release date marked.

One can see from the above 2 charts that the US stock market is very sensitive to job reports and CPI numbers in recent months.

For the past 6 months, The job plus CPI reports caused DOW to drop more than 5% on 4 occasions. The 2 months in March and May that DOW did not react was because DOW had already responded to other bad economic figures like ADP Non-Farm Employment Change or Fed's rate hikes.

However, it is expected that Wednesday's CPI report on 13 July might not cause a big stir in the US markets for the following reasons:-

1. As June's CPI report has just resulted in DOW dropping more than 8% without proper recovery, it is anticipated that DOW could have already priced in July's CPI number;

2. The commodity prices that caused inflation just started to fall in July. The CPI report on 13 July is actually for June. The market is likely to ignore this 13 July report until next month.

On the other hand, if the July CPI report is better than expected, it will proceed to cover up the leftover gap.

Update 21 July 2022 - Covering Leftover Gap

US market has been taking its time to decide its next move but the general direction appears to be going up to cover the leftover gap.

This decision could be seen from the attached business cycle chart between SP500, US Dollars, Commodity and the US Bonds.

In the past business cycles, the stock prices tend to rise after the fall of Commodity and the rise in US Bond markets.

Presently, Commodity prices have dropped more than 20% since the last rate hike on 15 June 2022. At the same time, we see US Bond prices start to rise. This business cycle tends to support the move to expect the Fed to keep the rate hike within the expectation of 75 bps, bringing the Fed Fund rate to 2.5% by next Wednesday, July 27, 2022.

Therefore, it is likely that the market will make an attempt to cover the leftover gap before deciding to make its next move.

Update 28 July 2022 - Covered Leftover Gap

DOW finally covered the leftover gap (shaded red in the attached chart) today after Fed hiked 75 bps in the Fed Fund rate. It is likely that it will head up to test the nearest support @ 32,600, failing which, it will make an attempt to cover gap 1 created recently.

Note that there is also an existing gap created on November 9, 2020. This is a run-away gap after drugmakers Pfizer and BioNTech announced that they had come up with a coronavirus vaccine that was 90% effective. DOW might want to challenge and cover this gap if the support @ 29,700 were to fail for some reason.

Update 1 August 2022 - Covered Leftover Gap

DOW managed to break the resistance @ around 32,600 last Friday amid the big stock like Apple and Amazon presented better forecasts ahead and also, it was the last trading day in the mid-summer. Traditionally, the market is expected to take a fall in the coming Monday after a rise last Friday.

The DOW's RSI indicator is suggesting that DOW might just want to test the next resistance @ 33,300 and then fall back down to test the immediate support @ 31,600 before going down further to cover up the leftover gap @ around 30,800.

after note: 6 August 2022: The reluctant of DOW jumping up and starting a rally yesterday with very good US Job Report suggested that DOW might want to head towards 30.800 to cover the gap created a few weeks ago.

6) Support and Resistance

Support and resistance are often used by traders to buy and sell a stock. The following chart shows all the support and resistance in red presently found in the daily chart of Shanghai Composite (SSE).

The support and resistance are usually all in one line. This is because the support can turn into resistance and vice versa.

There are 10 events shown in the following chart:

Event 1: shows the support has just been broken;

Event 2: now become the next support; but unfortunately, it was broken too 2 days after;

Events 3 & 4: is the next support; in this event, traders sent SSE up to test the support created by event 2; but, the effort failed;

Events 5,6,7 & 8: becomes the next support; this time, it successfully broke the resistance for the first time and sent SSE up to test the support created in event 1;

Event 9: shows the testing failed; as a result, traders sent SSE down to test the next support @ Event 10;

Unfortunately, SSE broke the support on 15 July because China reported a very poor 2nd quarter GDP growth of 0.4%, it will be testing the next support @ 3, 050.

Traders could earn more if they could also combine the use of this support and resistance chart with patterns described in this webpage

Update 16 July 2022 - SIA Support & Resistance

SIA has a similar story on support and resistance as the Shanghai Composite described above except the SIA has more Support/resistance lines as shown in this attached chart.

Presently, SIA has just crossed the resistance at 5.21 marked as event 8. SIA had almost lost this "resistance turned support" on 14 July but regain it on Friday when this news about SIA having better performance was known. The next resistance for SIA is 5.36.

Update 6 August 2022 - S&P500 Support

The US markets were reluctant to move forward despite the fantastic Job Report figures on Friday, August 5, 2022. The Non-Farm Employment Change was 528,000. This figure was more than twice the expected figure of 250,000. However, the US markets were not excited. S&P 500 stayed below the resistance of 4,170. This suggested that S&P 500 might want to go down and test gap 1 @ 3,800 created on July, 15.

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.

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