Wednesday, June 5, 2013

Bottoms and Trap Doors...5.6.13

Early market action suggests another down day with the advance/decline line at a bearish .38 level (1.00 is equal advances versus decliners).
Following yesterday's post we are seeing some development of the bond/equity skew but it still too early to bet on that trend.  Note the TrendX charts of the SPY and TLT in the right side panel.>>>>
SPY has once again arrived at a technically critical support level, while bonds are just marginally improving. Cash is still advised.

In response to reader queries here's another look at the hairy bottom setup.
There are 2 examples shown on daily bars for FDX (Fedex).
The first resolved into a trap door...wherein what looked like a bottom turned into a drop to new lows.
The second was a true hairy bottom...with a gradual upslope rise in price following a series of long tails on the candlesticks which I have hence nicknamed the "hairy bottom".

This pattern appears in all time frames..2 minute, 10 minute, daily, weekly, etc.  In most cases momentum reversals are more reliable when such a bottoming is clearly visible, although the markets have been known to go straight up or straight down without the advantage of this pattern.
Saturday's post of the EWJ (Japan Index) is such an example of an abrupt turnaround..