Back on November 9th a large wick shooting star candle formed on the Dow Jones Industrial Average daily chart and the $&P 500 Index chart. A large dark engulfing candle formed on the NASDAQ Composite daily chart. These candles suggested a broader market pullback was in order. There was a brief decline, but not the short to intermediate top that might have been expected. In fact, the averages quickly returned to their November 9 levels.
Now another indication of a possible short to intermediate term top has formed on all three charts. It is the bearish eveningstar reversal pattern. This 3-day pattern consists of a large up-day candle, followed by a doji-like candle, and completed by a large down-day candle. The eveningstar represents a transition in price action and investor sentiment from bullishness to bearishness.
Today’s finishing dark candles formed because of a late session waterfall decline in all the averages. It can be seen on the ten minute DJIA chart. The eveningstars could trigger declines to the next levels of support on the individual index charts. It looks like the Dow and the S&P are likely to retest their October highs. The NASDAQ may be headed down to a retest of its 50 day moving average.
This market quickly absorbs good news and just as quickly discounts bad news. It’s a tough one to trade. Keep any eye on these index charts and keep your stops tight.