Possible very bearish tri star doji formation SPY ETF

Market analysis still amazes me to this day.  You get to the point sometimes where you just do not have a clue what the next move of the market will be, and then out of no where the market hands you a little clue. Sometimes the clues are very subtle and not so obvious.

Anyway, lets recap:

The sp500 declined with heavy volume towards the 1560 zone going into the end of the quarter.  There was a zone of bullish harmonics between 1563 and 1568 because of a bullish gartley pattern.  The sp500 during the last 4 to 5 trading days successfully bounced north from this bullish harmonic pattern but now appears to be neutral range.

The KEY with the gartley pattern is the interpretation.  Sometimes bullish gartley patterns lead to market bottoms and strong northward trends that lead to new highs.  Other times, bullish gartley patterns lead to short term reactionary bounces after which the market resumes its normal previous trend.  In other words, sometimes these gartley patterns are merely pause points in a predominant trend (which may be down at this point).

So we have this small low volume bounce from the gartley pattern, but now at the potential peak of this bounce we have a possible tri star doji formation.

There is a possible tri star doji candlestick pattern in the SPY ETF as of the close June 28th, 2013.  This can also be seen in the Nasdaq Composite Index and Nasdaq 100 Index, although they look less than perfect.  However the SPY ETF tri star doji looks well formed.  It is still not perfect, but when do we ever get perfect with any market or stock these days?  Many times I have seen candlestick formations that do not meet 100% formation criteria, but they still give the same signal.  I think one just has to combine judgment of the smoothness of the formation relative to other technical criteria that define the current state of the market.

Tri Star Doji’s are a very rare candlestick formation and a potentially very bearish one.  They probably give most ideal signals when right at the top of a price advance.  In this case the potential tri star is forming after a small reaction rally from a previous heavy volume sell off.  It is not such a great sign for hopeful bulls that this pattern is forming right at the end of the key second quarter. The pattern still needs to be confirmed with a price close under the pattern.

I remember quite some time ago there was a Chinese stock named China Agritech with symbol CAGR.  It has since been delisted (I forget the reason, maybe for accounting errors?  I remember they put KPMG on the job to verify their financial statements but then things just got worse and worse).

I was watching China Agritech quite closely for a while and it was quite a fast and strong mover and had great technicals.  But then I noticed a possible tri star doji formation on the stock right after a huge advance.  I was going to go short with puts but passed on the chance.

Take a look at this chart of CAGR near the peak where you can see the tri star doji, essentially three small doji candlesticks hanging up in the air:

CAGR Tri Star Doji Chart 

Now take a look at the full chart and posting I had done on the stock sometime later:

China Agritech Mid March 2010 Tri Star Doji

You can see the tri star doji in the mid March 2010 time frame.  You do not have to look that far after to see what happened.  It marked the peak for the stock and a huge decline ensued.

Of course not every tri star doji has to lead to that magnitude of bearish price action, but the signals have the potential for being quite powerful if they are confirmed.  Look for very weak price action during the next few trading days for early signs that this pattern wants to give a confirmed bearish signal.

Posted in Online Trading

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