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Thursday, March 19, 2009

Dark Cloud Cover On the SPX

UPDATE 10:30AM 20 Mar: As jejegig pointed out in comments, technically it isn't quite dark cloud cover. It has to open higher than the previous day. XLF did produce dark cover though as Kenny pointed out.

I use candlestick patterns often enough particularly in key situations. Perhaps today is one of those days. I overlooked it earlier but there is a classic "dark cloud cover" potential candlestick showing. Of course with candlesticks they must be confirmed by some kind of followthru action. So placing bets just on the candle can get you killed. However more often than not, they are reliable.

Stockcharts has an excellent "Chart School" and thoroughly explain chart patterns and Candlesticks. Its really my base reference.
The "shooting star" which is usually a reliable topping candle printed nicely last week and is one of the reasons I continued to go with the 5(5) down to new lows. Well, it certainly didn't work out. It got absolutely crushed the next day. Perhaps the worst violation of a nice shooting star I have ever seen.
So today printed yet another very bearish candle daily pattern. So all in all, being that the market is on the short-term overbought still, perhaps I should give more weight to the downside count of things. Particularly the "spiky" top at heavy resistance and finally a flirt with the 50DMA. Also the daily BB is sitting at 808 or so. But maybe it needs to puncture this a few times.
Also in my update tonight I was lookking at daily e-min volume which was indeed on the light side as compared to the last few days. However re-examining the SPX cash index (stockcharts dont print volume candles right away at end of trading hours) it was indeed high volume on the cash index.
I am not playing any longs here by the way (except my 401K I bought at sub 700), although I have a valid potential interpretation of the wave structure, this is new territory somewhat. So confidence is not real high that this market can get over 800 on fumes.
In fact I bought more FAZ on the 800 spike this morning and I still hold half.
I just wanted to make sure I got that out and I am giving slight odds to my alternate count as compared to the primary hyper-bull wave that eventually closes the 826 gap. So if a very bearish pullback is in order more than already occurred, 750 is a good spot for starters if 775 support breaks. 775 pretty much has to hold as support if any kind of hyper bull wave to above 800 is to occur. The wave structure would be "broken" if indeed it retraced to far. That would imply wave 2 of some sort has started down.
So 775 is a battleground area.
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