Bearish Shooting Star on The S&P Chart May Be a Good Thing

By | July 2, 2016

It has been a exceptional week for the market. On Monday the support line in the 2040 area of the fabled channel pattern on the S&P 500 chart was broken, and it looked like the consolidation had finally resolved – to the downside. On Tuesday there was a reactionary snap-back that retested the support-turned-resistance level. It was a strong one-day move but seemed logical following two extremely weak days. What happened next was not expected by many technicians or fundamental traders and that was two strong follow-up sessions which took the index back into channel range, and a Friday close back up near channel resistance. Monday’s break below channel support proved to be a “bear trap.”


There was a “bull trap” earlier in the month after a “shooting star” candle formed on June-7 that penetrated channel resistance intraday and then closed back under it. These high wick shooting star candles are signs of exhaustion and while they can be followed by several attempts to continue to push prices higher, they often precede a period of pullback or consolidation. A shooting star formed in Friday’s session just below horizontal channel resistance and the downtrend line drawn off the false breakout high. It could be the first sign of a bearish transition and that may not be a bad thing over the intermediate term.
The reversal and run this week expended a lot of the market’s energy and, at this point, it might be in the best interest of the bulls if this latest shooting star candle did signal a brief pause or pullback, so the market can regroup and refresh before the next breakout attempt.

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