Technical Analysis

ChartWatch: Where's the low in US stocks? Plus potential key reversals in Crude Oil and Thermal Coal

Mon 22 Apr 24, 4:35pm (AEST)
investor checking to see where the low in the market downturn is
Source: Shutterstock

Key Points

  • US stocks are firmly in correction mode at the moment, what are the key support points where a low could occur?
  • Crude oil prices have been rising on escalating tensions in the Middle East but broke to the downside late last week
  • Thermal coal prices have been in a downtrend for over a year, but there's a slight glimmer of hope for coal bulls the trend might be changing

1. Nasdaq Composite Index (USA)

S&P ASX 200 XJO Daily Chart 22 April 2024
Watching closely for the price action at the long term uptrend ribbon

Let’s ponder a potential low-target for US stocks using my favourite US stock index, the Nasdaq Composite 🤔.

I prefer to use this index because its constituents are highly sensitive to movements in interest rates – the major driving factor behind market moves at the moment, and due to its breadth. “The Comp” as it’s also known, contains nearly 5000 stocks compared to just 30 for the Dow Jones Industrial Average and 500 for the benchmark S&P500.

Looking at the current technicals for the Comp, the most obvious target is the dynamic demand expected at the long term uptrend ribbon (dark green zone). There are also a couple of historical points of supply (at 15150 and 15158) which roughly coincide with this zone.

Remember! 🚨 An expected point of demand (more commonly known in technical analysis circles as “support”) is nothing more than a hunch until we see how the candles play out there.

Actual excess demand will manifest itself as white candles and/or candles with downward pointing shadows – this is why I call these types of candles “demand-side candles”. So, if we see demand-side candles at the long term uptrend ribbon, there’s a good chance the buyers have stepped in finally to buy the dip.

This doesn’t guarantee a low, or “the low”, or anything really. It would just tell us demand at the ribbon is greater than supply. I'd look at such an occurrence simply as increasing the probability the price will rally.

On the other hand, if we hit the long term uptrend ribbon with a bunch of black candles and or candles with upward pointing shadows (i.e., “supply-side candles”), then there’s no demand there. On the contrary, it’s a wall of supply, and this means it's more likely the supply-side will push prices lower.

It’s up to the market now which scenario we get.

2. Brent Crude Oil ICE

Brent Crude Oil ICE 22 April 2024
The uptrend in crude oil prices is under significant pressure following end-of-week moves

Last time we checked up on the Brent crude oil price it was nudging major historical supply at $92.31. The last few candles of last week's trade have blown a significant hole in the bull case with the price now trading back around USS$86/bbl.

The dead giveaway something wasn’t right within the demand-supply environment for the bulls was the long black 17 April candle which closed very near its low. Volume was also elevated in the session which suggests a wall of supply was met with a substantial amount of retreating demand.

Why was there so much demand in a big move down? Because up to that point, the market had been conditioned to buy the dip. The problem here (we’ve all had this sick feeling 🤢...) is the dip kept dipping!

After that black candle, there’s now a bunch of traders who feel they’re caught on the wrong side of the market. They’ll want out as close to their entry price as possible – this means any rally back into the black candle’s range is likely to be met with excess supply.

Enter the 19 April candle with its long upward pointing shadow – the perfect manifestation of supply at higher prices. Note volume was elevated here also = ⚠️.

All of the above has caused the price to trade at the lower end of the dynamic support of the short term uptrend ribbon. Today’s candle (still live) is pointing towards a close below the ribbon, which could trigger the price to probe the lower demand zone between $83.80 and $84.52.

It’s hard to stick with the bull case here unless we see a quick return to white candles and or downward pointing shadows, and see the price trading nearer to what is now going to very stubborn overhead supply at $90.75-92.31.

3. Newcastle Coal (Thermal) Futures ICE

Newcastle Coal (Thermal) Futures ICE 219 April 2024
Is that a rally, hold on, let me get my 🔎!

Also worth a shout-out today is Newcastle thermal coal futures.

No doubt, given you’ve been following my technical method for a little while now, the first thing which jumps out at you in the chart above is the swathe of dark pink from the massive long term downtrend ribbon.

The long term downtrend ribbon in this chart is an excellent example of how trends change more generally. Consider the price action back in January 2023:

  • To start with the long term trend = ⬆️

  • Price action changes to falling peaks and falling troughs 📉= ⚠️

  • Trend ribbon to switches to neutral ⚠️

  • Price closes below long term trend ribbon ⚠️

  • Formation a lower peak below the long term trend ribbon = Confirmation of new long term downtrend (occurred in late January) 🚨

  • Trend downtrend ribbon changes to down, indicated location of dynamic supply zone

Friday’s uptick triggered the first change in colour of my long term trend ribbon since 2 May 2023, sending it back to neutral. The short term trend is up, very moderately improving, and the price action is rising peaks and rising troughs. The price has closed above a key point of supply in 142.30.

As far as I can tell the demand-supply environment has switched back to one of tentative excess demand.

To change the long term trend to up, the price must now print a higher trough above the long term trend ribbon, or transition to dark green – whichever occurs first.

That could take a week, a year or it may never happen. I don’t prognosticate 🤷‍♂️.

All I can say is, for now, there’s enough evidence in the chart to suggest the crippling long term downtrend which has plagued the thermal coal price is on pause.

Written By

Carl Capolingua

Content Editor

Carl has over 30-years investing experience, helping investors navigate several bull and bear markets over this time. He is a well respected markets commentator who specialises in how the global macro impacts Australian and US equities. Carl has a passion for technical analysis and has taught his unique brand of price-action trend following to thousands of Aussie investors.

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