14 November 2018 (8:25 AM EST)
U.S. stock futures have been trading with extreme volatility through the global session today and have been fluctuating between big losses and small gains.
This indicates that major U.S. stock indexes are under pressure but their current technical support is helping price stay above those levels. This is particularly true about Dow Jones which has fallen near its major support of 25,150 and could see choppiness near this level.
As we know, it is easy to make profitable trades in a directional trend and difficult to trade a directionless/ sideways/rangebound market. But the good thing is, markets are always trending in one or other timeframe and if a trader keeps checking different timeframes of any entity, a trend can be easily spotted and traded for profits.
For example, if we want to trade Dow Jones, we can start by checking its monthly chart. On monthly level, this index is trading in a fixed range and drawing Fibonacci levels between high and low of this range given us 25, 150 mark at 50% retracement which is considered an important level.
Next, we take one step back and check weekly charts of Dow Jones. Here also the index is rangebound and is showing a 50-Day Moving Average support at the same level (25,150). This shows that this particular support level is very strong and it will either save the index from falling down or, if the index breaches this support, then stronger downtrend will start.
One more step back and we arrive at daily charts of Dow Jones. This shows a downtrend and the index shows it has fallen below 20-Day MA in this timeframe. But, still above the strong support of 25,150.
Next is 4-hour chart, again, shows a downtrend BUT- here we see the index had support at 25,150 on multiple previous occasions in this timeframe. That makes this support even more strong.
Then we move to 1-hour chart and here, a clear downtrend is visible in Dow Jones, where the index is trading below 20-Day MA which is acting as the trend line. Going by this chart, it may seem that selling the index will be a better strategy. However, the RSI indicator has become oversold in 1-hour time frame and after touching down to an extreme low level of 24, the RSI is now rising. This indicates that buyers will be soon coming back. Also, there is a strong support of 25,150 present nearby so even if Dow Jones falls in early trade, an oversold condition makes it ready for a bounce back in 1-hour timeframe.
This is just an example to show how day traders can identify trending and sideways trading conditions in different timeframes then choose a trending timeframe for day trading.
Usually, markets bounce back if 1-hour timeframe becomes oversold in any entity. Add to that a strong technical support level and we can expect a bounce back for Dow Jones and broader U.S. stock markets today.
But, overall, these markets are turning down (within a range) so after some recovery, the downtrend could return. Just keep watching technical indicators to know when that will happen.
For today’s session, expect a highly volatile intraday trading pattern in U.S. stock markets. Intraday support and resistance levels (given on our Pivot Trading page) can help day traders identify the trading range for major stock indexes. These levels are:
Wait for markets to become stable after opening volatility, then trade with the short term trend which is expected to remain sideways within this week’s trading range.