Watch the Weekly Wicks

By | September 25, 2016

The weekly charts of the S&P 500 and the DJIA show large dark or down candles formed three weeks ago followed by two futile attempts to recover positive momentum and their 10 week (50 day)moving averages. These failed recoveries formed high wick or long upper shadow candles, which reflect an inability to maintain upward momentum and hold higher levels. A similar “spinning top” candle formed on the NASDAQ chart last week. It has a narrow opening and closing “real body” range situated between a longer upper and lower shadow and it suggests indecision.

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Interestingly, a three period morningstar pattern formed on the Russell 2000 weekly chart. This pattern consists of a large bearish candle, followed by a narrow opening and closing range candle, and is completed by a large bullish candle, and reflects a transition in sentiment from bearish to bullish. The pattern is usually seen at important lows and can signal the start of a change in the direction of a trend. It is not considered a bullish continuation pattern, as suggested by its formation on the Russell chart, near a high. The question now is will the small cap and technology space lead higher or will the broader market averages pull then lower?

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