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Technical Update - ASML top and reversal pattern, indicators suggesting larger correction
Kim Cramer Larsson
Technical Analyst, Saxo Bank Group
Summary: ASML is in the process of forming a top and reversal pattern. Indicators warning about trend exhaustion. A larger correction is looming. Key support at 760
ASML is forming a Doji Evening top and reversal like pattern - circled. Combined with the divergence on RSI (RSI value at the highest close price is lower than the value at the 25th January closing), and declining volume it is a warning of a uptrend exhaustion.
This scenario is forming after ASML has performed three typical gaps seen during an strong bullish move.; Break Away gap, Continuation and Exhaustion gap.
A correction is in the cards. A correction that could take ASML down to test the upper part of the gap (we look at body gaps – not including the shadows/wicks of the candles) at around 760.
Sellers might trying to close the gap down to 707.50 but that gap is quite large and is probably too strong to close. 760 is key!
If ASML is closing the above 882.20 i.e., above yesterday’s peak the top and reversal pattern is demolished and ASML will be set for higher levels.
Weekly chart is showing ASML is in overbought territory. However, market can be in a state of overbought for quite some time. What is key is where this week is closing i.e., the closing price Friday. If closing below the opening price of last week at 823.40 this week will have formed a Bearish Engulfing candle, a top and reversal indication.
RSI is still in positive sentiment with no divergence indicating ASML could see higher highs. But if RSI is closing below its lower rising trendline it could be a warning of a larger correction.
Bottom line, keep an eye on this week’s closing price for the medium-to longer term outlook.
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