Yesterday I noted how strong the market leaders remained after the Fed Chair spoke on Wednesday and that the end of session rally was impressive enough to make the bears worried. Well, the market followed through in another meaningful way despite historically low retail sales and industrial production numbers on Friday. Although the weekly candle close doesn't look great at first glance, if you put the last four weekly close into the picture you get a better sense on whether the bulls or bears are winning. Let's check out what I mean below as we review the Nasdaq 100 (NDX) and S&P 500 (SPX).
Use Candles as Clues
Candles are an essential tool technical analyst should at least be familiar with. If you are interested in learning about more I highly recommend Japanese Candlestick Charting Techniques by Steve Nison. Now, onto the NDX. Below is the weekly chart.
Here, you'll notice that the NDX closed on a doji candle. Well known as a market reversal signal among most technicians. However, there are prerequisites that govern the doji and its likelihood of predicting a market reversal. (1) The following candle must confirm reversal, (2) the market is overbought, and (3) the market does not have many doji preceding it.
Of course the first rule is impossible to judge, but the remaining prerequisites do not favor reversal. The week of the April 20th is considered a dragonfly doji and the market is neither overbought on the weekly, daily or 4-hour timeframes.
More proof? Below is the weekly chart of the SPX. Notice the doji proceeding this weeks close.
Another observation we can make from the SPX chart is the long shadows (wicks) below the candles real body. The bulls have been buying support.
With all that said. A doji can also represent warning signs of market exhaustion. If the market would press higher, it could be the last push before a correction.
Resistance Flipped into Potential Support
Before showing you support and resistance levels, take a look below at the daily chart of the NDX. Notice that price corrected onto the 20 SMA. On the left side of the chart you'll notice how the 20 SMA was important support during the NDX rally to all time highs. Keep an eye on this moving average for clues for a true reversal.
Now, onto the support and resistance levels of interest. Below is the 4-hour chart of the NDX.
A test of the all time high is becoming a possibility. It is critical that this weeks low is not taken out.
If you are trading SPX ETFs I suggest you tame your expectations a bit. The SPX and DJI are lagging the NDX considerably. Below is the 4-hour chart of the SPX.
Just by looking at the price you can see how much weaker this chart looks compared to the NDX. Strong resistance will appear at 3100.
Bulls Full Steam Ahead
This week the bulls caught the bears in a trap. On top of the indicies looking strong there are plenty of individual stocks setting up 10-30% upside moves in the short term. I spoke on a few of them over the past few posts. Let's continue to remain with bullish bias until the market provides us with a clear reversal signal. Bias: Bullish.
Use Candles as Clues
Candles are an essential tool technical analyst should at least be familiar with. If you are interested in learning about more I highly recommend Japanese Candlestick Charting Techniques by Steve Nison. Now, onto the NDX. Below is the weekly chart.
Here, you'll notice that the NDX closed on a doji candle. Well known as a market reversal signal among most technicians. However, there are prerequisites that govern the doji and its likelihood of predicting a market reversal. (1) The following candle must confirm reversal, (2) the market is overbought, and (3) the market does not have many doji preceding it.
Of course the first rule is impossible to judge, but the remaining prerequisites do not favor reversal. The week of the April 20th is considered a dragonfly doji and the market is neither overbought on the weekly, daily or 4-hour timeframes.
More proof? Below is the weekly chart of the SPX. Notice the doji proceeding this weeks close.
Another observation we can make from the SPX chart is the long shadows (wicks) below the candles real body. The bulls have been buying support.
With all that said. A doji can also represent warning signs of market exhaustion. If the market would press higher, it could be the last push before a correction.
Resistance Flipped into Potential Support
Before showing you support and resistance levels, take a look below at the daily chart of the NDX. Notice that price corrected onto the 20 SMA. On the left side of the chart you'll notice how the 20 SMA was important support during the NDX rally to all time highs. Keep an eye on this moving average for clues for a true reversal.
Now, onto the support and resistance levels of interest. Below is the 4-hour chart of the NDX.
A test of the all time high is becoming a possibility. It is critical that this weeks low is not taken out.
If you are trading SPX ETFs I suggest you tame your expectations a bit. The SPX and DJI are lagging the NDX considerably. Below is the 4-hour chart of the SPX.
Just by looking at the price you can see how much weaker this chart looks compared to the NDX. Strong resistance will appear at 3100.
Bulls Full Steam Ahead
This week the bulls caught the bears in a trap. On top of the indicies looking strong there are plenty of individual stocks setting up 10-30% upside moves in the short term. I spoke on a few of them over the past few posts. Let's continue to remain with bullish bias until the market provides us with a clear reversal signal. Bias: Bullish.
