The major indices posted gains on Friday, but the charts reveal price action that was less positive than the closing numbers might indicate. Intraday reversals formed large high wick or upper range candles on the DJIA and S&P 500 index charts, and the Russell 2000 and the NASDAQ Composite closed near their lows of the day. The reversals began immediately after strong opens, as seen on the ten minute S&P chart, and only a final hour rally prevented a close much nearer the session lows.
The weekly trend is higher on the all but the Russell chart, where the consolidation this year is moving sideways, and that is an intermediate term positive for the markets. There is, however, a general sense that a breakdown in the small-caps will drag the broader market lower. In September when the other indices were making higher highs, the Russell made a lower high, eventually taking out its 50 day moving average and leading the way down to the October lows. Currently, there is another warning sign on the weekly Russell chart, the rare Tri-Star pattern, a three period set of doji candles whose narrow opening and closing ranges represent indecision. This combination of candles is often seen at market inflection points.
There have been a number of false “cautionary” candles on the charts since the October low, however, like the Tri-Star pattern that formed on the daily chart of the S&P 500 index two weeks ago, that was quickly negated by this week’s stronger close. That is why an objective technical viewpoint and price confirmation are important components of a successful trading plan.