This entry was posted on Tuesday, November 20th, 2007 at 10:07 pm and is filed under Education, chart patterns, market commentary. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
Earlier today before the release of the Fed Minutes at 2:00 EST I had made a rare intraday post to point to an oddity that had occurred on my 500 tick SP Futures chart (the ES). I like this chart because it makes turning points and flag edges quite clear to me on a longer term basis in order for me to time my entries on the shorter timeframes.
Anyway, this printed a pretty double “tent stake” - so named for their sharp bottoms and broad tops, an inverse of their brethren the “church steeple” top (hammers more appropriately). We had a decent rally off those and then after the Fed Minutes we printed more of these long wicks on the candles. Now if you trade intraday and especially on emotional big down days, any break of these long wick candles can spell trouble. Your typical breakout play that can certainly gather steam.
But if that emotional level is punctured and very quickly pops back up trapping those that played the breakout the fuel for a quick pop and potentially more is in place. That is exactly what we had happen today. The support of the long wicks were broken and the very quickly reversed. But the clincher was the volume in that reversal.
I drew in the emotional break down line. You can see that red candle (key bar) that punctures below the lows and closes below the obvious support level (naked close). This brought in massive trade size and which now sets me to watching the top of that bar as well as the emotional line. Remember breakout players played short below that level. As what typically happens when the breakout fails a quick snapback occurs with some follow through that takes out the emotional level as well as the key bars high (reversal).
So we have printed tons of reversals and ultimately print the clincher naked close reversal. Now what happens after the pop? We begin to trail back lower. But look at that volume as she rolls back. Nada. Shorts/Sellers flat out ran out of gas. I especially like these Naked Close Reversals to be on big volume and in key support and resistance areas. The volume should be the tell if it is.
In this case the ensuing rally pounced upon the lack of sellers and found a key support area for a very large advance into the close.
One more trading day until Turkey Time. If I don’t post before then….Have a Great Night and a Glorious Holiday!
Dave Johnson