|The main indices are showing bullish intent with the bottom hammers from Friday's action. These bottom hammers are accompanied by higher than average recent volume and this offers additional credence to this bullish view. The hammers do require next day confirmation via a bullish day. How far this technical bounce goes remains to be seen.|
|On the daily Dow chart below, a falling wedge pattern is evident and this is a potentially bullish pattern. Should this bullish upside now be launched off this hammer, there are two immediate resistance targets, the first being the 20-day EMA (exponential moving average) currently at 7879, and the next being the previous congestion area around the 8000 level. A regroup or retracement there would not be a surprise. The next level of upside resistance I see on the chart would be the 8150 - 8250 zone.|
|"Prime Chart Pattern" from chartlook.com with permission.|
|Graphic provided by: StockCharts.com.|
|On the S&P 500 chart, a similar move is probable. Unlike the Dow it did not actually go under the recent low but did come very close-- Close enough to argue a possible small double bottom pattern. In this case the pattern is not ideal. It is preferable to see a longer time period between bottoms, better symmetry and lower volume on the second bottom. However the trough line seems to be in line with an obvious resistance level so I will give the pattern some leeway as a smaller double bottom. Not all patterns are ideal. Should this proposed pattern fulfill to completion, the upside target by measurement would be 900. Reversals at or near those suggested resistance targets should be respected.|
However, failure of hammer being confirmed to upside, negates the bottom hammer and leaves the door open to additional downside. The action of the next few days should be carefully watched for more additional clues such as volume confirmation (weak volume shows poor commitment) and any sudden reversals either way. The markets remain volatile and reversal oriented.
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