Early morning losses were quickly erased during the first half hour of trading. However, before the first hour of trading was over the highs of the day would be set. The bits of economic news were split with Markit US PMI coming in slightly lower than expected while the Richmond Fed reading was better than expected. The rest of the day would we would see the market drift lower. Even a last ditch effort at 3pm by buyers was quickly met by sellers. The last half hour was quite ugly as the market returned to its session lows. There are definite cracks in this market’s foundation and it is best tread carefully here. Respect your exits as this market continues to churn through the waning days of the third quarter.
We do have to remember we are in a historically weak part of the calendar. Not to mention we have the end of the latest round of QE ending as well as thin leadership. The market is simply going to adjust to the reality of the situation and move forward. One thing we do know is extended bear markets tend to occur after interest rates rise. At the moment, the Federal Reserve has indicated their target rate will not move higher until next year. Price will continue to be our guide and at the moment price action is weak.
The Hidenburg is back! Bears are likely to be all over this and will pound the table bad things are about to happen. We know there is no perfect indicator, but the Hidenburg has appeared prior to big declines. Just remember it is not perfect. Here is the chart:
Another bearish sign was today’s confirmation three black crows candlestick pattern. In the above chart of the NYSE Composite index you can see the pattern. Here is an overview of the pattern:
This pattern consists of three consecutive long-bodied candlesticks that have closed lower than the previous day with each session’s open occurring within the body of the previous candle.
The next few days will certainly be big for this market. We will need to see this market reverse higher to negate the three black crows pattern.
We are not out of the woods yet. Many of our indexes aside from the Russell 2000 are no where near oversold territory. McClellan Oscillator is oversold, but our more intermediate indicators are not oversold. Until we see more evidence this market can form a meaningful bottom we will continue to operate with caution.
How we close out the rest of the week will be interesting to see unfold. Continue to stick with your trading plan and Big Wave Trading.
