Bearish Candles On The Stock Index Charts Bear Watching

By | June 13, 2018

It seemed like a fairly neutral statement by the Fed this afternoon, accompanied by the expected 0.25% rate hike. The major market averages had remained stable immediately following the Fed statement but then sold off into the close.

The Dow was down today -119.53, the S&P 500 off by -11.22, and the NASDAQ Composite settled -8.09 lower. Not big moves but since the daily average true ranges of these indexes has been shrinking, bearish engulfing candles formed on the Dow and S&P 500 index charts. A shooting-star like candle formed on the NASDAQ chart, a candle with high upper shadow or wick and a close near the low of the day.

That is the takeaway from today’s action, the indices closed very near their lows of the session. The first time this has happened this month.

Granted a bearish engulfing or high wick candle reflects just one day’s worth of price action. It’s based on a small amount of data but this rally is based on a small amount of stock data. The NASDAQ for example, is heavily weighted to a small number of stocks in the technology space.

Apple Inc 11.868
Amazon.com Inc 10.003
Microsoft Corp 9.489
Facebook Inc 5.607
Alphabet Inc 4.849
Alphabet Inc 4.169

— Total: 45.7%

Just five stocks account for over 45% of the weighting in the Nasdaq Composite. It’s all good when they are being bought but when that reverses, it will take down the rest of the components in the index.

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