Technicals

Dow’s Hammer Candle Warns Of Reversal

Testing support from a steep channel, a drop below would suggest that an important top is in place at 10730.  The next level of support is 9679, then 8878.  The level that produced the January top has been significant in recent years (2004-2006), which increases the likelihood that a more important is in place.

The Dow briefly broke below 10,000 to a low of 9,835 before retracing and closing back above the psychological level. The resulting hammer candle is typically a reversal sign which could see an extension of the bullish momentum that ended the week. However, another break below support would increase downside risks and expose 9,721-38.2% Fibo of 8,087-10,719 followed by 9,679-11/2 low.

The S&P has already broken below its channel, which reinforces the topping theme.  Just as the Dow’s January top occurred at a previously important level, so did the S&P top (see circled area).  The next level of support is 1029, then 956.  Favor the downside.

The S&P 500 like the Dow saw a significant retracement and a resulting hammer candle which is a reversal signal. The broader index found support at 1,043-38.2% Fibo of 869-1,150 which could prove to be solid support going forward. A break below exposes 1,029-11/2 low as the next barrier.

The NASDAQ has broken below a support line drawn off of lows in July and November.  RSI divergence on the weekly plot at the January high is also bearish.  The next level of support is 2024.

The NASDAQ has broken below the rising trend line and is looking to test support at 2,113-11/27 low followed by 2,024-11/2 low. Although not as pronounced as the other indices, the tech laden index also saw a hammer candle to end the week. So traders should watch for a short-term reversal before continuation of the broader bearish trend.