To The Moon

With the Fed decision in the rearview and another rate-setting meeting not coming until mid-May, one headline risk is off the table now. Trading in the index futures point to a mixed opening on Thursday, with tech and regional bank stocks showing notable gains.

Nervousness ahead of the Fed decision on Wednesday gave way to optimism, as the central bank raised the fed funds rate by 25 basis points to 4.75%-5%, in line with expectations, at the conclusion of the two-day monetary policy meeting. The policy statement released after the meeting signaled a pause could be coming, as a reference to “ongoing increases” was dropped from it.

After a small bounce, the market nose-divided in late trading. as Treasury Secretary Janet Yellen said the federal agency was not considering system-wide deposit insurance.

Pockets of green after FOMC 😉

What Is A Double Top Pattern?

A double top pattern is a bearish formation that arises when strong resistance inhibits the continuation of a bullish trend on two consecutive occasions. Two peaks above a support level define the “double top” formation, generally referred to as the neckline.

After a strong advance, the initial peak occurs, and the price retraces back to the neckline. After retracing its steps back to the neckline, the price becomes bullish and advances toward the resistance level, forming the second top. The formation is complete when prices return to the neckline following the creation of the second top. Confirmation of a trend reversal occurs after breaking the “neckline” support level.

Using The Double Top Pattern In Trading

The double top is frequently used in the forex and equity markets as sell/bearish signals. The charts below provide examples using both markets as references to observe how this pattern is utilized in different ways with regards to trade entry and exit points.

The double top pattern is formed after a prior uptrend with the first peak reaching a resistance high in conjunction with an overbought signal highlighted by the RSI oscillator. Following from this peak, the market declined in strength in formed the characteristic dip between the two peaks. The second peak then developed slightly stronger than the previous peak, and even broke the resistance level for a short while. Interestingly the RSI shows no breach/overbought signal (as highlighted) with this break of resistance. This confirms divergence between the market price between the two ‘tops’ and the RSI oscillator showing a slowing of momentum. In addition, divergence of this nature points to a bearish signal.

The entry point of this trade will be confirmed by a close below the neckline which is marked on the chart. The resistance level joining the two peaks may be taken as the stop level (neckline/dotted line) whilst the swing low prior to the double top formation is taken as the limit level. Fibonacci levels may also be implemented for stop and limit levels as opposed to the price action approach. With regards to risk management, this particular trade maintains an approximate 1:1.2 risk-reward ratio.

Stock market volatility (movement) is much less frenetic as displayed by the ‘smoother’ chart construction. The use of an oscillator has been implemented in this stock example above is to show the diversity of supporting functions that can be used with the double top pattern.

This type of trade setup allows the trader to enter the trade after the formation of the second peak to capitalize on a larger move downward as opposed to waiting for confirmation – highlighted above. The stop level is set at the high of the first peak and the limit seen along the neckline of the pattern. The stochastic oscillator is used to authenticate the entry point using the overbought sign seen above.

In summary the double top pattern is commanding if correctly utilized and understood. Proper support from other technical tools enhance the characteristics of the pattern to allow traders to implement this in various markets.

Broke out of the ascending triangle pattern

NVIDIA (NVDA) has broke out from the ascending triangle pattern even before FOMC. The volume is pushing it up towards the double top pattern next week. NVDA has an average rating of outperform and price targets ranging from $175 to $350, according to analysts polled by Capital IQ.

NVIDIA Corporation (NVDA) is currently at $272.34, up $7.66 or 2.89%

-Would be highest close since April 4, 2022, when it closed at $273.60

-Currently up nine consecutive days; up 18.59% over this period

-Longest winning streak since Dec. 27, 2016, when it rose for ten straight trading days

-Best nine day stretch since the nine days ending Feb. 2, 2023, when it rose 21.69%

-Up 17.31% month-to-date

-Up 86.36% year-to-date

-Down 18.4% from its all-time closing high of $333.76 on Nov. 29, 2021

-Down 3.25% from 52 weeks ago (March 24, 2022), when it closed at $281.50

-Down 4.96% from its 52-week closing high of $286.56 on March 29, 2022

-Up 142.58% from its 52-week closing low of $112.27 on Oct. 14, 2022

-Traded as high as $273.88

-Up 3.48% at today's intraday high

-Fourth most active stock in the S&P 500 today

-Third most active stock in the Nasdaq 100 today

All data as of 9:56:56 AM ET

10% gain in 10 mins 🥳

⚠️ Trading Tips: Trend is your friend. Looking to trend upwards until it's broken. Go with the flow and always protect yourself with a stop at the last support zone. Shall we meet at the second peak near 289 next week? Remember to bring your ski 🎿 ⛷ 

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