This one is a doozy. And it seems to be what everyone wants to talk about. The reversal candle of all reversal candles right? They’re scary looking when they appear after such a dramatic move higher aren’t they?
Who knows. But it is definitely a warning sign and a level to short against (if that’s what you’re into). The whole idea behind a candle like this is that the buyers are just exhausted. This candle tells that story. As they have been for the last six months, the buyers were ready, willing and able to load up on stocks this morning. And they bought them up nicely. But then uncle Ben disappointed the crowd. I wasn’t listening, but they didn’t seem very happy about what he had to say. So they sold treasuries (leading to higher rates), they bought US Dollars, and stocks were sold, and then sold some more.
The worst hit sectors were those that pay dividends. As rates exploded higher today, there was clearly less demand for the Utilities, Telecoms and REITs of the world. Funny enough, the gold miners were up over a percent, just to keep things interesting.
But the reason this candle is getting so much attention is that an intraday market reversal like this is typically found at or near turning points. And the market participants know it. That’s why they’re talking about this particular candlestick so much.
Candles like this one need to see follow through to confirm their bearish implications. So I guess we’ll see what happens on thursday. This could very easily be a sideways correction. Not all of them need to be price corrections. Right now there is definitely downside risk to 1635 and then 1600 after that, which were resistance levels on the way up.
My two cents: the bigger the top, the bigger the drop. We made new highs Wednesday in S&Ps, all-time highs no less. So to call for a market crash, or 20%+ correction at this point, I think is a bit premature. We’re respecting our stops and focusing on these market levels mentioned above. Things are probably going to be a lot choppier going forward than the slow grind we’ve been used to over the past month. That I can say with some confidence. But to say that this is all over and we’re crashing from here? I’m not there yet.
This 1660 break Wednesday was the first big support level that we’ve breached in what seems like forever. So yes, today’s candle has our attention. Deservedly so…
Tags: $SPX $ES_F $SPY