Tuesday, August 25, 2009

The Tale of Two Tails

I don't tend to put too much faith in candlestick analysis as I've experienced numerous occurrences where supposed bullish or bearish candlestick patterns haven't followed through. Not to say candles aren't useful, because I think they are. I just wouldn't necessarily trade off of them alone. With that caveat in mind, the last two days have produced some rather bearish candles on the S&P 500 Index.

[Source: EduTrader]

As you can see we've got a pair of topping tails showing intraday reversals that have occurred two days in a row. These intraday reversals are showing a lack of strength from the bulls and an inability to maintain their early morning gains.

The catch 22 here is despite the candlestick weakness- every time the bears seemed to of gained the upper hand since July they've been rebuffed by the bulls rather quickly.

Nonetheless the last two days are assuredly not instilling any confidence in bullish traders and I wouldn't be surprised to see some follow through to the downside.


Bill Luby said...

Nice catch. I had the same thought, but I see you got the chart up before the close.

I have never traded a "double inverse hammer," but I would think a close below yesterday's close -- something below 1025.5 or so -- would be a fairly strong bearish signal.



Tyler Craig said...

Thanks Bill-

I agree breaking yesterday's low would serve as nice price confirmation.

Justin said...

Wouldn't they be considered shooting stars(bearish) since they formed in an uptrend? Inverted hammers are the bullish counterpart that look the same but form in a downtrend.

Bill Luby said...

You are absolutely correct, Justin. The name is a function of (directional) context and in a strong bull move, these are shooting stars.