As we hit a very active week of bank meetings, we’re keeping a tight focus on confluence.
What’s that?
Confluence in trading refers to the alignment of price around various areas of technical interest.
Confluence can be derived from multiple sources coming together, including technical indicators, chart patterns, support/resistance levels, etc.
After a directional move is made, these areas can often be used for better trading decisions and higher probability trades.
As an example, we can look at the daily chart of the Nasdaq (QQQ) and see technical confluence occurring, with price currently trading around a few key levels:
Nasdaq (QQQ) – Intra-Day (9/16/24)
- Price at a downward diagonal resistance line
- Price at previous 61.8% Fibonacci retracement line
- Price around the 21-day and 50-day moving averages, with both intersecting
- Price trading in a tight daily/indecision candle trading range
- Price consolidating within a technical triangle pattern, starting from the price retracement of the July 2024 highs down to the August 2024 lows
A break up and above these levels and the consolidating technical triangle pattern (especially with conviction) would suggest a nearer term bullish price bias moving forward.
A breakdown below these levels and the consolidating technical triangle pattern (especially with conviction) would conversely suggest a nearer term bearish price bias.
Many traders are currently on the sidelines, likely waiting for the upcoming FOMC interest rate decision on Wednesday, September 18th.
Additionally, there are other central bank meetings this week, including the Bank of England (Thursday) and the Bank of Japan (Friday).
The Japan meeting is big, as it may impact institutional trading decisions relating to the “Carry Trade.*”
*The carry trade involves borrowing at a lower interest rate (Japanese Yen) and investing in assets that provide higher rates of return. Should the decision be made to raise Japanese interest rates that are not in line with market expectations, this is likely to negatively impact US growth stocks and the more heavily weighted “risk on” assets found within the NASDAQ/QQQ.
Waiting for price to directionally resolve either above or below these technical “areas of confluence” should help traders increase their probabilities of success.
We’re watching closely, as these moves will affect market trends – and one tool is head and shoulders above the rest at keeping you on top of them.
Happy Trading!
