Veteran, chart-based traders and investors know the number-one technical indicator to closely monitor on a daily or even intra-day basis is price trend. There is no more powerful trading tool. That’s why the trading adage "the trend is your friend" is so well known in the markets’ charting community. Consider this tenet: Price charts always reflect in "real time" all of the known past, present and expected supply and demand fundamentals, including politics, geopolitics and weather, in all markets. That’s why its proponents believe technical analysis is such a powerful trading tool to possess – and it does not take a PhD in statistics or technical analysis to identify a price trend.
An examination of the daily bar charts for the Direxion Daily S&P Biotech Bull (NYSE: LABU ) and Bear (NYSE: LABD ) 3X exchange-traded funds (ETFs) reveals both are in trending price moves at present.
LABU Rebounds Strongly From Early-August Low
The daily bar chart for LABU shows prices in early August hit a four-week low of 212.56, but then the bears ran out of gas and prices started to work higher, with the for-the-move high so far seen at 341.93. Price action has since been choppy and consolidative, which is not bearish and actually suggests prices can continue to trend sideways to higher.
Another price-friendly near-term chart signal for LABU has been the Moving Average Convergence Divergence (MACD) indicator that is in a bullish posture at present. The blue MACD line in early August made a bullish line crossover signal by crossing above the red trigger line. Now both lines are trending higher, which is also a bullish technical signal for LABU.
The next near-term upside price objective for the LABU bulls is pushing prices above chart resistance at last week’s high of 341.93. Such would provide the bulls with fresh technical power to then suggest a challenge of technical resistance at 375.00.
Other chart clues that LABU bulls have the power to extend the price uptrend would be two strong up-days in a row for prices, accompanied by higher-than-normal daily price volumes. That would suggest bulls have the strength and conviction to keep the price uptrend alive for a longer period of time.
A technically bullish weekly high close on a Friday would be another clue that a price uptrend in LABU is stronger and can be sustained. Daily closes in prices that tend to be nearer their session highs, as opposed to nearer their session lows or near the middle of their daily trading ranges, would also be a bullish signal.
Bearish early warning signals for the LABD bulls that the price uptrend is running out of steam or even ending would be a close in prices below the last "reaction low" in the price uptrend, which is located at 259.66. More serious chart damage would be inflicted if LABD prices dropped below the August low of 212.56. Such would suggest a sustainable price downtrend could be developing.
LABD Bears See the Price Trend As Their Friend
The daily bar chart for LABD shows prices have been trending down for three months and last week hit a new low for the life of the ETF. The price downtrend strongly suggests the path of least resistance for prices will remain sideways to lower, until there is a solid technical clue to suggest a market bottom is in place—of which there are none at present.
See, too, at the bottom of the chart for LABD that the MACD indicator is in a bearish posture, as the blue MACD is below the red trigger line and both lines are trending down.
Note that when LABD prices hit their fresh for-the-move low last week, daily volume increased significantly from levels seen the prior three weeks. That’s a sign the bears have conviction that prices are headed still lower over the near term.
A price move below psychological support at 5.00 is the next downside price objective for the confident LABD bears.
There is strong chart resistance for LABD at the August high of 9.98. A move above that key resistance level would be a clue the bear market in the ETF has finally run its course. Other early technical clues that LABD prices have, or are close to, putting in a market bottom would be two sessions in a row of solid price gains, accompanied by better daily volume numbers. Also, a technically bullish weekly high close on a Friday would begin to suggest the bears are finally exhausted and that prices would then at least trade sideways, if not start a fledgling uptrend on the daily bar chart.
Featured image from Shutterstock .
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