EXPANDING WEDGE MAY PROMPT BIG PRICE CORRECTION – COULD A BIG TOP BE SETTING UP RIGHT NOW?
EXPANDING WEDGE MAY PROMPT BIG PRICE CORRECTION – COULD A BIG TOP BE SETTING UP RIGHT NOW? by Chris Vermeulen for The Technical Traders
TDC Note – I just said on August 26, 2020 that we could see gold all the way down to $1,700 and silver all the way down to $16.00 – neither will drop much below either of these levels as the levels below this line are now done.
- The Monthly S&P500 E-Mini Futures chart is revealing an Expanding Wedge pattern that has been setting up since Jan/Feb 2018.
- The VIX has set up a base and begun to move moderately higher over the past 7+ days – above the 20.00 point level and above the GAP created by the initial COVID-19 selloff.
- Our Custom Volatility Index chart warns of a “bull trap” set up, and we may see an 11% to 15% (or more) sell-off in the US and global markets if the Custom Volatility Index collapses below 10 over the next few weeks.
- Are These Technical Setups Warning That A Market Top Is Forming?
I want to bring this large expanding wedge pattern to your attention as my research team and I watch the markets continue to push to new all-time highs. This is a follow on to our research from our Special Alert report warning of Head-and-Shoulder patterns in some of our custom charts. We know it may sound a bit alarming to be the one to bring up a potentially devastating Bearish technical pattern at this time, but as technical traders, we must stay aware of risks even if they may not materialize. Trading is a process where we take measured risks in an attempt to generate profits over time. Risk becomes a very big issue if it is not properly managed – just as trading becomes very difficult if one doesn’t learn to take profits in good trades.
LONG-TERM EXPANDING WEDGE RISKS – BE WARNED
The Monthly S&P500 E-Mini Futures chart below highlights the Expanding Wedge pattern that is setting up over the past 26+ months (starting in Jan/Feb 2018). The US stock market has rallied after the COVID-19 virus event to push to new all-time highs – rising above the upper wedge channel. Our researchers believe this pattern may be warning of a potential for a very deep price correction – possibly 11% to 18% or more.
There are a number of other technical setups that are starting to confirm a potential break down. The following Weekly Custom Volatility Index chart shows some very interesting price action this week. First, we want you to pay attention to the Standard Deviation Channels that are drawn on this chart – there are two of them. The longer-term Standard Deviation Channel is sloping higher while the shorter-term Channel is sloping downward. We want you to focus on the downward sloping Standard Deviation Channel and how price has risen to the upper 1x Standard Deviation range (the BLUE LINE) and stalled this week (while the markets continue to push to new all-time highs).
This setup on the Custom Volatility Index chart has our research team concerned that these new price highs may actually be setting up a “Bull Trap” – getting retail and institutional traders to chase the rally, then collapsing into a deep and aggressive downward price trend. If the Custom Volatility Index collapses below 10 over the next few weeks, it would indicate a very strong selling mode has begun where we may see a 11% to 15% (or more) sell off in the US and global markets.