NEO (NEO/USD) Analysis November 3, 2017

A typical Break Out pattern is made up of three parts. These are support or resistance trend lines to mark consolidation or trading range, a candlestick break out and a retest of support or resistance trend line. In this cryptocurrency pair, price action is already beyond the third stage of a typical break out pattern – the retest and is trending in the direction of the initial break out.

In the 4HR chart, you notice that in the past two or three weeks, price action has been consolidating within a $5 range between $30 and $25. Notice how the minor and support trend line marking out the falling channel were successful in keeping price. During this time of consolidation, USD bulls retested minor support trend line 4 times while resistance was being retested 3 times. These trend line tests, price action was accompanied by clear volume surges. Check out the volumes data in the primary window. At minor resistance trend line or the upper limit of the channel, a surge in USD bulls leads to those long upper wicks and a bear pin bars. Moments later, trend changed from bull to bears.  

So, since NEO is now bearish after that initial break out, it is important to note parts of this Break Out strategy currently in play. The actual break out below major support trend line happened on October 19, 2017. It was a perfect break out because during that time, stochastics were turning from overbought territory with a sell signal in place. Afterwards, price trended lower briefly and rose again. When NEO appreciated, price action retested support (now resistance) trend line at October 24, 2017but then look at the stochastics. Prices were moving up but bear momentum was beginning to take shape resulting in what we call a bear divergence. It is this divergence and a retest with a stochastic sell signal that drove prices lower according to the initial October 19, 2017 break out direction. During that retest, price action closed above the upper BB further cementing that sell as a low risk high reward entry point.

My recommendation

I personally expect this depreciation to continue. If anything, it looks like the USD will pare losses after losing ground this year. Furthermore, from a top-down approach higher time frames are a priority and used to determine the direction of trend in lower time frames. Therefore, as the weekly chart is very bearish, I recommend taking short positions every time there is a stochastic sell signal turning from the overbought territory in this pair going forward.