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PUBLIC: Channels and candlesticks – Dr. J's Market Thoughts Press "Enter" to skip to content

PUBLIC: Channels and candlesticks

The stock market opened 60 minutes ago on 1/10/18 and I wanted to point out to my readers a candlestick pattern and some observations.

The RED arrow near the top of the chart is pointing to the daily candlestick representing trading for 1/9/18.  Note a few things.  Price poked above the pink channel I’ve been writing about for some time.  Price has returned inside that channel (so far) the next day (as I write this).  If you study candlestick shapes and patterns (Google is your friend), this single candlestick is known as a “gravestone doji” and represents a lack of follow through by buyers.  The 3 candlestick pattern trying to form, rising into the gravestone doji followed by a fall away from the gravestone doji, is a potential short term top pattern.

I hinted earlier this week looking for a test of SPY $270 near the end of the week.  If this candlestick pattern holds throughout today, it would be the first sign that a market move in the downward direction could be in the cards over the next few days or weeks.

Note the yellow arrow down on the RSI indicator where numbers 81.56 and 80.08 are noted.  The peaks of the RSI are declining, while the price is moving up.  Since RSI is a momentum indicator, what it might be trying to tell us is that the momentum of buyers is running out in the short term.

Simply put, until a new high is created taking out the top of that gravestone doji, it would be wise to expect a short term pull back in the market.  I have some ideas on where things might go, and that big white oval down on the right side of the screen has been on my charting software since November 2017.  How cool would it be if we got a 10% correction down to the bottom of the white 2016-2017 price channel?  Wait and see!  But don’t be surprised if it happens!