Given the steady selling this week, I have been forced to retreat from many longs and adopt a wait-and-see approach. As I am writing this, I see that we are reversing well off of today’s lows. We printed an inverted hammer on the S&P 500 chart, as well as many others, yesterday and that could have signaled an imminent reversal. However, inverted hammers are fairly common and require major upside confirmation.
On the other hand, dragonfly dojis are rare. The main difference between a regular, non-inverted hammer and a dragonfly doji is that a dragonfly doji has no head to the hammer, or no body–It is all shadow. After a week straight down of selling, it will be interesting to see if the bulls can close us out on the highs. If so, the dragonfly doji will prove true and there will be a higher probability of an upside reversal than with the inverted hammer. Even as I write this, today’s candle is flipping back and forth between a huge hammer and a dragonfly doji.
And if you think this is all charting mumbo jumbo–It’s not. It is simply a reflection of supply and demand for stocks.
Watch the close.