Dojis at the Highs – A Look at DIA QQQQ and SPY

Aug 25, 2009: 5:23 PM CST

All three major US Stock Market Indexes – along with their respective ETFs – have formed two dojis in a row above their upper Bollinger Bands.  While this certainly doesn’t guarantee a reversal, it’s at least a warning sign that would benefit us to take a closer look.

Let’s see the price moves of the DIA, QQQQ, and SPY off their March lows and take a look at the current doji candles along with other instances where at least two dojis in a row formed… and see what happened next.

DIA (Dow Jones ETF):

The commentary will be roughly the same on all charts, so take a momentum to let “a picture be worth 1,000 words” in this post.

QQQQ (NASDAQ-100 ETF):

SPY (S&P 500 ETF):

In discussing each chart, the QQQQ was the only ETF not to have two dojis in a row at the March lows.

All ETFs formed multiple indecision candles (which is what dojis are) during the early part of June.

All ETFs except the SPY had doji-like candles at the July lows (bouncing off the 200 day SMA in the event of the SPY).

You can see the result in each case was either a major or minor reversal or turning point in the market – if just for a simple pull-back to support.

The DIA looks to have the worst (bearish) pattern, given that the current candle is a “Gravestone Doji,” which indicates a large-scale price rejection of the highs.

Bulls have so far ignored each and every non-confirmation and sell signal, driving prices to higher and higher levels so I probably wouldn’t jump all-in short just because a couple of dojis have formed at new highs above the daily Bollinger Bands… but I wouldn’t jump in here all-in long either.

Let’s see what happens in the next few trading sessions.

Corey Rosenbloom, CMT
Afraid to Trade.com

4 Comments

4 Responses to “Dojis at the Highs – A Look at DIA QQQQ and SPY”

  1. TriStar Doji on SP500 August 27 | Afraid to Trade.com Blog Says:

    […] “Dojis at the Highs – a Look at DIA, QQQQ, and SPY” […]

  2. TriStar Doji on SP500 August 27 | Penny Stock Trading System Blog Says:

    […] “Dojis at the Highs – a Look at DIA, QQQQ, and SPY” […]

  3. dpstrctr Says:

    corey –now the spx has 5 dojis at the top of the bollinger bands –bearish in extremum? I looked back to 2004 and found 9 other instances of 3 or more dojis at the top of the bands, and in all cases but one (4/19/07), price retreated to half or more of the distance to the 20emas. The 4/19/07 3 doji pattern resulted in several more days of trading at the upper bands. I am not experienced enough at reading the derived indicators like your 3-10-16 oscillator to be able to see what was different about the one that one. Perhaps you can have a look?
    Most of the sector spdrs are at the tops of their bollinger bands on the dailies –pullback coming this week?

  4. dpstrctr Says:

    corey –now the spx has 5 dojis at the top of the bollinger bands –bearish in extremum? I looked back to 2004 and found 9 other instances of 3 or more dojis at the top of the bands, and in all cases but one (4/19/07), price retreated to half or more of the distance to the 20emas. The 4/19/07 3 doji pattern resulted in several more days of trading at the upper bands. I am not experienced enough at reading the derived indicators like your 3-10-16 oscillator to be able to see what was different about the one that one. Perhaps you can have a look?
    Most of the sector spdrs are at the tops of their bollinger bands on the dailies –pullback coming this week?