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Dec. 3, 2018, 4:25 p.m. EST

This bullish technical pattern in the stock market supports Trump and Xi’s trade tango

But it’s hard to know how long the dance will last

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By Nigam Arora


Jorge Royan

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.

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.

Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.

/zigman2/quotes/209901640/composite
US : U.S.: NYSE Arca
$ 253.42
-7.78 -2.98%
Volume: 224.34M
March 27, 2020 8:00p
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/zigman2/quotes/210598065/realtime
US : Dow Jones Global
21,636.78
-915.39 -4.06%
Volume: 591.33M
March 27, 2020 5:12p
loading...
/zigman2/quotes/208575548/composite
US : U.S.: Nasdaq
$ 185.30
-6.60 -3.44%
Volume: 58.84M
March 27, 2020 4:00p
loading...
/zigman2/quotes/209961116/composite
US : U.S.: NYSE Arca
$ 112.56
-4.25 -3.64%
Volume: 39.93M
March 27, 2020 8:00p
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