Both the daily charts and the weekly charts show a “Hammer” formation last week. The hammer is a pretty good indicator of a turnaround point – it results from a washout intra-day with a close near the open of the day. It’s a sign that the weak players capitulated in the morning, and strong/smart hands came in to take advantage of their panic selling by scooping up the washed out stocks.
Last Wednesday was the hammer candle date, having watched the market melt down from an open of near 1870, melting down to 1810, then closing not too far off of the open at around 1860. The weekly hammer was punctuated by the strong recovery days on Thursday and Friday. Probability is for a rally over the coming 1-2 weeks. Dovish talk by the Fed this week would add to that potential. Click on the charts below to enlarge.
Target range for the S&P’s rally lies between 1950 – 2000. Bearish trends seen on both daily and now weekly charts, along with big-picture indicators such as bearish breadth, the break and maintaining of price below the 200 day MA, a break of midterm trendlines, and longer termed MACD trends suggest this market is entering into a mid-termed bear phase. This rally is one to be sold, unless you have enough fortitude to withstand what could be a strong correction before the next bull phase begins. I don’t have such a strong stomach.
So what’s the plan?
My plan is to sell stocks incrementally starting around 1950, and leg out if the rally continues. If it reverses strongly from my first leg out, I will sell more aggressively. Today’s futures are pointing down as I write this blog, but the Fed meeting is yet to come. Let’s see how that plays out.
On this coming Wednesday’s blog, I would like to cover 3 ideas that might profit in what I perceive to be a mid-termed bear market that may last a few months. Stay tuned.
Keith on BNN
I’ll be on BNN’s MarketCall show this Friday January 29th at 1:00pm. Tune in for this one if you can – I hope it to be enlightening.