The S&P retested the top end of the support zone in Friday’s session and was able to hold the bounce off that level. It still closed down for the day but did form a hammer candle and remains situated in the middle of the neutral zone. The continued integrity of the support zone and the hammer candle are bullish signs on this timeframe, but the latest candle on the weekly chart has a different tone to it.
A shooting star formed on the S&P 500 and DJIA weekly charts. This is a candle that has a narrow opening and closing range positioned at the lower end of its overall range, and a large wick or upper shadow. It represents the bull’s inability to hold higher levels and sitting just above support adds to its tentative character. A spinning top formed on the Russell 2000 chart and this candle, which is similar to a doji has a narrow opening and closing range but in the center of its overall range, and it suggests indecision on the part of market participants. In opposition to the other weekly index candles, the white marubozu on the NASDAQ chart has a wide range, and the open at the low and close at the high indicates the bulls are in control. It could be that the composite index is taking on a leadership role and will pull the broader market higher or continued weakness in the other indices could eventually drag it lower.
Trading the volatility and diversions in these indices can be profitable if you are in sync with the daily or intraday oscillations, but it can be frustrating and costly, if you are not in time with the rhythm of the market. Patience preserves capital, and, as I have said, sitting on your hands while the market bounces around in the neutral zone is a plan.