Technical Analysis Thursday: When In Doubt, Stay Out

Let’s take a look at what the markets are telling us today.

Stocks are rallying hard today, but are struggling to break above resistance (red line in the chart below).

Stocks are due for consolidation

This suggests that the rally is tired and due for consolidation.

We have had two similar phases since the markets bottomed on March 23. They happened from March 31 to April 6, and April 20 to April 27 (red boxes in the chart below).

Recent Consolidation Period

The big question for investors is if this is a buying opportunity or the start of a major drop.

A Message from Credit: “Be Patient”

Credit typically leads stocks, and credit is coiling for a big move.

You’ll note in the chart below that credit began to struggle in early April. Stocks rallied through that month despite this weakness.

In terms of what’s to come, credit is about to break out of a triangle formation (blue lines). Breakouts from triangle formations typically resolve in EXPLOSIVE moves.

Right now, credit has major support just below current levels (red line in the chart below), which suggests the move should be upwards. But given that we’re approaching the weekend and traders are extremely long and looking to unload those longs, this setup isn’t clean enough to warrant putting more capital to work.

coiling chart

One of the most important adages for professional traders is “when in doubt, stay out.” With that in mind, given the muddiness in the markets, I’d suggest waiting for a breakout before committing more capital to stocks.

Best Regards,

Graham Summers
Editor, Money & Crisis

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Graham Summers

Editor Graham Summers has spent the last 15 years building a reputation as one of the most sought after and highly respected investment strategists on the planet. His work has been read and quoted by former Presidential advisors, award-winning institutional analysts, U.S. Senators, and more. He’s one of the few analysts on the planet to...

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