Stock Market Analysis

Wednesday, August 09, 2017

Dow Forms Dangerous Signal...

The Dow broke its 10 days bullish run yesterday with a small 16 points retreat after my loooong report to paid subscribers yesterday. Here was what I said:

"The Dow continued higher yesterday, its 10th straight positive day, putting the odds of the next week being negative at more than 90%."

Yes, with the Dow making 10 straight positive days on Monday, the odds are overwhelming for a turn around, which it did.

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Yesterday, the Dow formed an extremely bearish signal that further reinforced my prediction that this is when the US market could go into an intermediate correction before it finds strength to break the 22K level for real. Yes, just a couple of days peek above a powerful psychological level like the 22K and 21K level isn't a breakout at all. In fact, most of the time, its a bull trap (meaning a delicious positive day before everything turns down), just like what we saw back at the 21K level. The bearish signal I am talking about is an inverted hammer candlestick with a volume surge, occurring with new historical high price made on the wick of the candle itself. An inverted hammer candlestick is a candlestick which has a long tail on top and a small body near the bottom which is formed by the the market moving strongly intraday, hit a new high and then selling sets in to take it all the way to close at or near the opening. This is a price action that tells us that people are selling into the high strongly and is winning at it. This is an EXTREMELY bearish candlestick setup which, occurring at such a level usually means a significant pullback is in the books. In fact, the volume yesterday was the highest since June and is the kind of sudden volume surge that usually suggests something is about to change. 

Investors and traders continue to be uncertain and split as bond yields rises with a return to equities while total equities put call ratio remained at par. Such is the kind of pattern that tops show. As such, I continue to believe that this is at least where you don't want to be newly long and be patient and see what the market does for the rest of the week before considering an entry.

For now, the market remains in short term neutral trend within an intermediate and primary bull trend.


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