Yesterday the sp500 printed a doji candlestick with a narrow range. Today’s reversal looks like a hanging man candlestick which is also potentially a reversal in trend type candlestick.
However both of these potential reversal candlesticks are still as of yet unconfirmed because we did not close below the low of either of them yet. I don’t know if we still can or not, it may be a toss up. The bears tried to pull us down from this downtrending resistance line I pointed out yesterday and they did so for a while but then could not finish the job.
It would help the bear case a lot if they can manage to get a hard down day tomorrow as we are still contained within the bear market downtrend as defined by the blue dotted line.
Having said that it would also help the bull case quite a bit if we are able tomorrow to blast into the green shaded area on a Friday to close out the week. These doji and hanging man candlesticks for now are still to be interpreted as a pause in the current uptrend instead of a change in trend.
I am a little bit skeptical that anything of magnitude will be accomplished tomorrow given it is a lazy summer Friday and option expiration day, but I am open to be surprised. It is worth repeating that the market is indeed at a very important juncture here as the reaction or lack thereof from this level could have a lot to do with how the second half of July 2010 looks.
The last 6 or 7 trading days has quite a similar look to the previous two large scale bear market rallies we have had since early May 2010. Those in the bearish camp would point out that bear market rallies tend to be very sharp and quick and of considerable magnitude.
Looking closely at the mid June rally that failed one can see clearly that it also had a series of dojis and reversal candlesticks. The last candlestick on 6/21/2010 was a bearish engulfing candlestick and it lead to the big drop into early July.
We are also still trading at a lower low (the forth one since late April) consistent with a downtrend.
The market may trade higher into the green shaded area and then reverse very hard down into the close tomorrow, that is probably the most bearish outcome I can think of at this point.
So there are several scenarios, but I am waiting for the market to give a clear signal about it’s next intention. Given the current location of price relative to the downtrend and the lack of confirmation of the two most recent candlesticks I have to say it is ‘still to close to call’ at this point.