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In Japanese candlestick terminology, a “doji” candle reflects a tight, neutral trading range, indicating indecision on the part of market participants. Depending on the size and shape of the candle, there are different types of dojis. However, for our purposes, let’s focus on the fact that a string of dojis have appeared each time the market has banged its head up against the the very top of our multi-month trading range. In short, since May we have seen several days of notable indecision at the top just before we rolled over and headed back down to the bottom of the range.
As has been one of my recurring themes this week, I submit to you the question of whether this pattern has now become too obvious and predictable to repeat this time. Assuming today continues to chug along the way it is, we will have seen three dojis in a row this week on the S&P 500 actively traded ETF, $SPY. Despite the bearish results after we saw the dojis earlier in the summer, the pattern is generally considered to be neutral. If you have not noticed it yet, the period in which we have been trending has shrunk considerably, even intraday, as momentum is drying up. The market is compressing to the point where it will eventually explode. The easy answer is to say that we are in a trading range, and therefore the explosion will be to the downside.
But has that now become too easy of an answer?
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My crystal ball says we are going …., damn I dropped it, now only time will tell.
Rising Wedge on daily chart says we go DOWN! (Very good contrarian analysis).
Thanks Chess,
I’m always learning somethings from you!
@Chess…mkts are waiting for a sign from the FED. If the philly index on thurs is -ve and if we don’t get much of a reaction on QE2 from the FOMC, then mkts will force their hand..i,e expect a big selloff
Tarot card reader down the hall says bad numbers then a massive selloff followed by a huge gap higher resulting in bears getting soup kitchened in fazmobiles nationwide.
I’m all about the range though.
I’ll wait for it to come out on DVD
CBI? with the steel stocks going soft in the head guiding down? chart call only? day trade or something? do tell!
chart call, swing