WallStreet: Short term bearish momentum approaches bullish support line
The short term daily candle chart below shows the price of the WallStreet CFD descending a steep short term bearish channel (point 2 on chart) within a larger short term bearish channel (point 1). It had entered this channel (point 1) after failing to hold above the upper resistance line of a long term bullish channel (point 3) in early August 2013.
In the current session, the WallStreet CFD has broken below the support line of the long term bullish channel (point 3) and nearing session lows around 14902 (as of publication). The low of the session as of this writing – near 14878 – has broken below the support line of the short term bearish channel (point 1). If support can be found here or further below on the long term bullish support line (point 6) – which could be a target before moving higher – then a reversal could ensue along a short term bullish support line (such as point 5). If such a line developed (such as point 5) a target may follow of the upper resistance line of the bearish channel (point 1) or up a less bullish trend line (such as point 4) whose slope is similar to previous medium term bullish trend lines. Resistance may also be encountered near the static level of 15000.
If the support line of the short term bearish channel (point 1) fails to hold current prices or support a continued descent, then a more aggressive descent may follow especially if the long term bullish support line (point 6) fails to hold. If both lines (point 1 and point 6) fail, static support may be found near 14550 (point 7) in the short term.
A note on CFD’s: A Contract for Difference, or CFD,is a financial contract allowing traders to potentially profit whether markets move up or down and include risk of loss. CFDs are cash-settled based on the difference in the value of an underlying asset from the time a trade is opened to the time the position is closed.
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 15005 with a Limit to take profit @ 15073 and a stop-loss @ 14969 Risk/Reward Summary: Limit risk = + 68 points profit / (-36) Stop-loss risk = Gain to Loss ratio = 1.89
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 14899 with a Limit to take profit @ 14810 and a stop-loss @ 14933 Risk/Reward Summary: Limit risk = + 89 points profit / (-34) Stop-loss risk = Gain to Loss Ratio = 2.62
Medium term chart (daily candles):