Moving averages play a significant role in reflecting trading sentiment. Especially, the breakout or breakdown seems to change the sentiment from a medium-term perspective. The basic averages are 50-day moving average (DMA), 100-DMA, and 200-DMA. Herein, the convergence of moving averages provides a strong signal that attracts market volumes. A positive crossover is called a “Golden Cross” and indicates bullish sentiment and a “Death Cross” implies bearish sentiment. Whenever a stock forms a death cross, it is highly recommended to exit longs without giving it a second thought.
A 'death cross', as the name suggests, is a harbinger of negative sentiment. This negative crossover not only shifts the sentiment, but destroys the upside momentum. Because of the said formation, bears start gearing up for shorting opportunities on every scalable recovery. This, in-turn, results in follow-up resistances that transform into challenging tasks. CLICK HERE FOR THE CHART
A stock with a gap-down close bearing strong volume clearly suggests growing weakness. It is highly advised to exit that stock, at least for the time being. Herein, until the stock trades below the gap-down high, one needs to avoid and stay away from trading in it. If the stock is not bearing fresh weakness, then it should rebound quickly, and cross the respective high; however, If it does not and continues to fall further, this implies selling pressure.
The high of the gap-down stock becomes the resistance and every possible recovery is considered as a shorting opportunity. Keeping the high level as the stop loss. The sentiment turns highly negative and the stock is expected to see more weakness, going ahead. CLICK HERE FOR THE CHART
RSI Divergence (bearish)
Whenever the negative or bearish divergence appears on the chart, one needs to be very careful. Although, the price shows a strong momentum, even a minor selling pressure may trigger negative sentiment. Going forward, if the price starts showing diminishing strength, then a healthy correction may pick up pace and may eventually result in a massive selling pressure. All these should be done after analysing if the RSI is in overbought territory as it denotes profit booking and selling pressure.
RSI always helps to consider the strength and intensity. It can easily determine the speed at which the stock may show upside or downside. Bearish divergences have severe impact on the overall structure and performance as it hinders the upward surge. CLICK HERE FOR THE CHART