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The majority of the world markets are up at least 4%, with US equities opening up over 5% during pre-market. The US equity markets have not yet given us our basing pattern yet and we are watching them closely for this signal. Equities have made many swings in this incredible down trend (pullbacks before heading down lower further), and many are looking for some sort of trend exhaustion perhaps indicating we will begin heading towards the upside. This would require a combination of monetary and fiscal policy. We have the monetary side from central banks all around the world: cutting rates and/or providing liquidity. The US Fed took it to new levels by announcing they will buy securities. Markets remain hopeful for fiscal policy in the US to come in the form of a relief package. Currently, it is not being able to pass congress due to disagreements between the Republicans and Democrats and what the Dems want in this package.

As we look for the US equities to give us a signal, we have received one from the Japanese Nikkei. Japanese markets here have created the quintessential reversal pattern : the head and shoulder pattern. This pattern takes the form of a “W” shape with what appears to be two shoulders on either side, and a head jutting down a bit further. All this pattern does is it indicates to us a shift in trend. A reversal.

For the Nikkei, the big level here was the 18500 zone. Not only was it a big resistance level (price ceiling), it is also where the previous lower high swing was. Just in basic terms, as long as we remain below this swing, we are in a down trend. This zone has been broken. From here, we are expecting a higher low swing (essentially a pull back, before making a new high), and this would strengthen the case of a new up trend.

 

The German Dax here is also giving us a similar pattern. We seem to have a head and shoulders pattern here as well and have broken the previous lower high swing indicating the completion of the down trend. There is a large zone at the psychological important number/level at 10,000. Seeing a push over that level would strengthen the case for further gains.

Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.

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