Action After Price Drops

Hey Market Pilots,

With the big move down in the markets toward the end of last week, price got stretched and when this happens there is always a bounce at some point. The first bounce is usually pretty easy to spot, but the real question is what happens after this point.

In the screenshot below, you can see that there was a gap between price and the daily 8 exponential moving average (EMA). Price doesn’t like to be too far away from moving averages for too long, and the 8 EMA is a typical one I look at for near term activity. I then looked lower and saw that price was also at the lower hourly third average true range (ATR) which is another typical place for price to bounce.

So this is the easy part because sharp down moves initially tend to get bought up. But are they getting bought by short-term traders who have no intention of hanging onto the position and therefore the bounce eventually runs out of support, or are longer term buyers coming in and it was a good dip to buy in an overall uptrend?

Right now we don’t know this answer, and for me, the lower time frames will be the guide. We will have to see if price eventually gets over the moving averages and uses them for support, or if any up move is into resistance and eventually knocks the market back down.

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Your Profit Pilot, TG


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