On August 3 2011 there was a hammer reversal at a support zone and it turned me bullish for the short term at that time. The next day the market opened and it COLLAPSED.
That small hammer candlestick was completely ignored. In fact in hindsight one can clearly see that the hammer was not really a true hammer in that it did not have a very long bottoming tail.
Today’s hammer reversal also did not have a long bottoming tail but we will have to see if it leads to a drop like it did the day after August 3, 2011. I am a bit skeptical it can happen again given how many head games the market is currently playing.
The more the market drifts around, the closer we get to the Fed meeting next week. So the risk here is that this whipsaw action keeps dragging on until next week which will be very frustrating.
I thought the market would plunge into the Fed meeting but it could be that we drift or rally into the Fed meeting.
We are at the juncture now where I would really like to see some downside resolution out of the current pattern, but we keep hanging on by a thread.
This market is extremely devious right now and does not want to show its true hand. The shorts are scared the market will blast higher and the bulls are scared it will blow them away to the downside.
The LONGER we go sideways, the bigger the move we are going to get.
It is still true that we fully engulfed the maribuzu candlestick of several days ago. So the question now is will we get a real move with conviction through this false hammer candlestick.
These small hammer candlesticks can be very dangerous!
Personally I do not believe today’s hammer candlestick reversal and think we get a repeat of August 3, 2011.
But if we close above today’s hammer tomorrow then it could be trouble in paradise for the bears…