By Nigam Arora
In the 1880s, a partner dance called the tango originated in Argentina. Now U.S. President Trump and President Xi of China have orchestrated a successful tango at the G-20 meeting in Buenos Aires calling for a truce in the trade war.
Is foresight more valuable than hindsight, especially to stock market investors? The week before the positive news, we wrote in the Arora Report’s Morning Capsule: “Both sides want a deal. The probability of the market going higher on Monday (after the meeting) is fairly high.” Many were predicting a failure in Argentina, and some expected a big decline in the stock market.
There is now a bullish technical pattern developing in the stock market. Let’s examine the issue with the help of a chart.
Please click here for an annotated chart of S&P 500 ETF /zigman2/quotes/209901640/composite SPY -2.98% . A similar conclusion can be drawn from the chart of the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -4.06% , but the charts of Nasdaq 100 ETF /zigman2/quotes/208575548/composite QQQ -3.44% and small-cap ETF /zigman2/quotes/209961116/composite IWM -3.64% look different. Please note the following from the chart:
• The chart shows the left shoulder, the head and the right shoulder.
• The chart shows the neckline.
• The chart is showing the potential formation of an inverse head-and-shoulders pattern. This is bullish if the pattern actually forms. If the pattern fails, that will be of concern.
• The pattern will be complete if the neckline is broken to the upside.
• The chart also shows the resistance zone.
• The resistance zone is not that far away. This indicates some caution.
• The chart also shows that RSI (relative strength index) is entering the overbought region. This also indicates some caution.
• So far the volume has not been what I would have liked for a long-term sustained rally.
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