We saw another large downtrending bar develop in the cash S&P500 on Friday. However, unlike Thursday, we closed higher on the day. This price action has now caused the 10/31 price bar to contain a fractal high. Even with a higher close on Friday, I must also note that the downward moving price pulse that began at the 10/31 high still continues. This forces us to face the key question: Can we hold the October 24 low?
The market managed to stay above our “do or die” 10/24 low of 1489.56 but was it a reversal bar? No. At least it wasn’t a Reversal Day; Signal Day, or Snap-Back Reversal Day. How about from a candlestick perspective?
The following is from the stockcharts.com candlestick dictionary: "Hammer candlesticks form when a security moves significantly lower after the open, but rallies to close well above the intraday low. The resulting candlestick looks like a square lollipop with a long stick. If this candlestick forms during an advance, then it is called a Hanging Man."
So we have a Hammer. Yosuke Shimizu; in his article “Reading Candlestick Charts” in the book “Breakthroughs in Technical Analysis; New Thinking from the World’s Top Minds” (edited by David Keller), calls this pattern a Takuri shape and states “… they represent an opportune buying signal, especially if they are accompanied by high volume”. Note that Friday’s volume is in the top five since the August bottom.
So what now? I’ll be waiting to see if we can make a bottom. I may trust the Hammer pattern but I want to verify it. Particularly since the GLOBEX has the s&p down 15 points as I type this!
Bottom line: As far as the wave count goes I will quote my last blog entry:”1489 must hold or I am back to the drawing board.” Even more important to the longer-term count is to hold 1479 (the wave I’ high back in August). I remain out of the market.
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