SPY Bearish Candles at the Highs

Aug 1, 2009: 6:27 PM CST

I wanted to show a quick update of the current SPY (which is similar to the DIA and QQQQ) ETF chart to note two ominous bearish candles at the recent highs of $100.oo.  Let’s take a look.

This chart shows the entire run-up from the early March 2009 lows to the current highs a few pennies shy of $100 (1,000 on the S&P 500 Index).

As price challenges this ‘magnet trade’ target, we see that the last two trading sessions have formed upside down doji candles, or more technically, shooting star patterns.  The telling sign is the long upper shadows which indicate price rejection of the highs.

The 3/10 Momentum Oscillator is also slightly rolling over, indicating perhaps that this swing up has ‘run its course’ and that a corrective move down is now forming – under normal circumstances.

My suggestion for the weekend is to take a moment to look at leading stocks (like AAPL, GOOG, XOM, WMT, INTC, etc) to see what type of candle formations have set-up at the recent highs in these stocks.

For example, in Google (GOOG), a bearish engulfing candle formed on Friday’s trading after Thursday’s doji – not a good sign.

Again, no guarantees of a reversal, but these bearish candles at the highs are glaring non-confirmations and could serve as early warning signals that a turn is around the corner – at the minimum, it’s not the type of ‘candle action’ bulls want to see at the highs.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

22 Comments

22 Responses to “SPY Bearish Candles at the Highs”

  1. pipercolt Says:

    yes, was noticing this shooting star , island type reversal here. although u were showing on your previous blog a bearish pattern yet it gapped up. Maybe this is the true form of a top.

  2. max1111 Says:

    coulnt confirm for email letter maxx

  3. jamesmarkii Says:

    Looking for 30-50 point SPX drop in the next 5 trading days.

  4. sandew Says:

    There is a divergent view by some writers on the web. Collin Twigs opine that current rising prices on falling volumes indicate 'a scarcity of available stock which should drive further gains”. I am confused. Any comments on dynamics of this contrary axiom?

  5. kbmartin Says:

    Mar 24-25 is also a shooting star followed by a doji. Then Mar 26 is up (to clear out the shorts?) before the 30-50 point SPX drop, which I agree with jamesmarkii is coming.

    So, I think yours is a great observation, Corey, but I just wanted to point out that we could get a big head fake yet before the correction comes (and of course you have said nothing to the contrary of this idea).

    EWA has a compatible count for this scenario too, in the form of an expanded flat, where you make a new b-wave high before going sharply down with an impulse. But of course EWA has a compatible count for lots of things.

    Kevin

  6. Corey Rosenbloom, CMT Says:

    I think it's true to the form that we deal in probabilities, not certainties!

    We have to go with the weight of the evidence with respect that the evidence is showing a probabilistic picture in time, given the information available at that moment. What creates the edge is having the odds in your favor and a smaller stop relative to your larger target.

    As this rally proves, it's harder than it looks!

  7. Corey Rosenbloom, CMT Says:

    That seems to be the most logical conclusion – one I tend to share – but I'm still impressed and respecting what the bulls have been able to accomplish here. Need to see support levels taken out before getting bearish – caution is warranted.

  8. Corey Rosenbloom, CMT Says:

    I'm unaware of Collin and will definitely seek out that article – it could help explain things which seem to have defied common though in the technical community.

    Classic TA would teach that rising prices on falling volume is quite bearish, and there are studies to prove this phenomena, but nothing is certain in the market.

    Generally, we want to see higher prices being pushed up with higher volume (activity, participation, price acceptance, 'greed,' etc) though as volume drops off, we would expect a reversal (in that price reverses when the last buyer is filled).

    Thank you for sharing that line of thought – interesting.

  9. billfitzpatrick Says:

    IMO this trade is such a juicy target, the obvious stops just above the highs will almost certainly be taken out. Trading just isn't that easy!

  10. Trade1 Says:

    If the whole technical community has got this wrong then who's been getting it right? Obviously someone has been making money off this rally. And it's not retail investors as they've sat on the sidelines for most of it. I read a couple of months ago that odd lot selling on the NYSE was at it's highest level in 7 years so if anything the retail investors were selling into it.

    So who's been making the money and how? That is what I want to know. If all the traditional technicals have been wrong all along, what have those “in the know” been following? It sure aint fib levels or candle patterns or volume patterns. Food for thought.

  11. Name Says:

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  12. jamesmarkii Says:

    futures are inching north…i cant focking believe they are still running this market up w/o any semblance of a pullback

    yes you are right.

  13. Name Says:

    what about this? no real insight here but…

    the market is fading Elliot Wave Analysis, retracement, etc.

    Ever since March people have tried to use logic on Wave 2,,, in general they've done worse than people who don't know anything about the stock market except buy and hold; ie. zombie buyers who probably just assume its going back where it started! don't know anything about P/E etc. Take a look at China's stock bubble…

    If Elliot Wave says that we're in 2-C-2 with a downside of 931 and an upside of 1200, and sitting at 985; and the last retracement underperformed at 870 — common sense would say just stay long at this point.

    Do 'they' have more chaos to gain by running it down or up at this point? And remember that oligarchies like a little chaos, as stuff goes missing easier.

    Intraday volatility has been falling since March — implying that what we're converging to is a straight line — up.

    We have already entered a bubble mentality. Bubbles only go one way; they don't follow the rules. The only issue is when they will burst.

    Take a look on the web at “South Seas Bubble”..first stock market bubble 1720 .. from 100 pounds to 1050 pounds and back to 100…

  14. Name Says:

    Oh and as follow on,

    by the power vested in me by Meredith Witney

    I hereby upgrade:
    -oil to $100 because it's really good stuff; yes they will prove why the CFTC has to do something
    -the S&P to 1200 because any dumb ass can see that the crash will get reversed
    – BAC to $25 since once they get over something, i'm not sure what, that's where it's going to

  15. sandew Says:

    For easy reference, it is Colin Twiggs (now spelt correctly) of IncredibleCharts.com at http://www.incrediblecharts.com/tradingdiary/20….

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