Stock of the day: BASF

Monday ended with very handsome V-shaped reversal patterns on major indices. I don’t think that anyone is surprised by that, American traders in particular. V-shape reversals are their specialty and it wasn’t the first time we witnessed something like this happen. This allowed us to enter Tuesday in a good mood. Yes, we did have a small correction but stock traders are definitely calm and happy that the drop was stopped so fast.

In today’s piece, I would like to show you the chart where the situation is not yet so clear and we do have something for both sides of the market. Both bulls and bears will find something interesting. The final signal is yet to come. We will talk about BASF, one of the biggest companies in Germany.

First the positive factors. We are in the uptrend. Yesterday, the price created a nice bullish candle and made it on the 23,6% Fibonacci. We’re also bouncing from the lower line of the wedge, and a wedge is a trend continuation pattern. This is all typical price action in a healthy uptrend.

On the other hand, the price broke crucial horizontal support on the 66.3 (orange). That is, it may not be much but this alone is a good reason to continue this bearish correction.

The technical analysis is pretty clear here. As long as we stay below the orange resistance, the sentiment is still negative. The buy signal will be triggered, when the price breaks the orange resistance (which would mean a false bearish breakout) and when the price breaks the upper line of the wedge (which will mean the end of the correction). The second option seems more probable.