Hammer Grows to Large White Candle

DJIA + 152.68, +2.01% SP500 + 13.21, +1.66% NASDAQ Comp. + 23.01, +1.51% Russell 2000 + 6.41, +1.52% Exchange NYSE NASD Advancing 2,787 1,798 Declining 943 940 Oil $48.39 -$1.51 Gold $926.10 +$3.50 SOX 233.87 +2.96 VIX 42.28 -1.86 The VIX moved down and did confirm the move up in the SPX on Wednesday. Strongest Sectors: XLF +2.84%...XLK +2.82%...XLI +2.22% Weakest Sectors: XLV -0.04%...XLU +0.39%...XLP +1.71% The Financial sector and the Technology sector were the top two sectors for two days in a row. XLF rose 2.84% Strong financial stocks that gained more than 2.84% on Wednesday included: PRU, KEY, AXP, C, JPM, ZION, NTRS, IVZ, ALL, MS, PNC, GS, TRV, RF, BAC, METand ETF’s FAS and UYG. The Technology ETF, XLK rose 2.82%. Leading tech stocks that gained more than 2.82% included: GLW, MSFT, EBAY, CSCO, AMT, AAPL, VZ, T, and ORCL. Sector Watch Up Trending: Sideways: XLE, XLY, XLV, XLK, XLB Down Trending: XLF, XLP, XLI, XLU The SPX and DJIA formed a bullish outside day and the Nasdaq and many individual stocks formed bullish engulfing patterns on Wednesday. Tuesday’s Inverted Hammer Confirmed on Wednesday As I have taught more than 10,000 traders about candlestick patterns in live Advanced Technical Analysis Workshops over the past three years, I have been asked repeatedly about why the Inverted Hammer is a bullish pattern. The question is usually preceded by a statement to the effect that they can understand that the Hammer is bullish because it has a lower shadow and closes near the high, but they don’t understand why the Inverted Hammer is bullish since it closes near the low of the day. This of course is what occurred on Tuesday in the SPX, some of the other indices and in many stocks. In a workshop I will show on a chart that the Inverted Hammer is preceded by down days in which the sellers were in strong control. I then point out that the Inverted Hammer represents the first day in which the buyers controlled the trading for at least a portion of the day and this represents a shift in control and in momentum. Of course an Inverted Hammer can fail, but in many cases, especially when the stock or index was already in a prior up trend before the pull back, the inverted does indeed signal the shift of momentum and the control of the trend back in favor of the buyers. The SPX formed an Inverted Hammer on Tuesday which was also the second candle in a Bullish Harami adding additional technical evidence that momentum on Tuesday was indeed shifting from down to up. Even though the futures were down over night and some felt the news of the ADP Employment Report was worse than expected, cash buyers took control right after the open on Wednesday and maintained control for most the day with the SPX, other indices and many stocks closing near their high for the day. The early candle (see the SPX chart from Wednesday mornings post below) was a Hammer but turned to a larger white candle as buying continued into the close. (click image to enlarge) Index Commentary The DJIA formed a white candle that closed above Tuesday’s high…outside day…confirmed Tuesday’s inverted hammer/bullish harami…closed above 20, 30 and 50 DMA The SPX formed a white candle that closed above Tuesday’s high…outside day…confirmed Tuesday’s inverted hammer/bullish harami…closed above 20, 30 and 50 DMA The Nasdaq formed a bullish engulfing…confirmed Tuesday’s inverted hammer…closed above 20, 30 and 50 DMA The RUT formed a white candle that confirmed Tuesday’s inverted hammer/bullish harami…closed above the high of the low day…closed above 20, 30 and 50 DMA At the Open on Thursday SPY – bullish engulfing SNDA – broke horizontal resistance DECK – bullish engulfing CTSH – higher close WYNN – confirmed bullish harami/hammer SCHN – bullish engulfing MHS – broke horizontal resistance FCX – bullish engulfing OSG – bullish engulfing X – bullish engulfing BRCM – bullish engulfing FAS – bullish engulfing EBAY – bullish engulfing We shared this virtual trade live in our Monday night AT Webcast, SNDA, which was a buy stop (if stock rose to 37.25) limit (2.25) on 10 May 40 calls which filled Tuesday morning at 7:31 am at $2.15. We said Monday night the target, if the stock broke resistance, was the 43 to 45 range. SNDA broke above resistance today and closed at 40.80. The May 40 calls closed on Wednesday at 3.85, which is a gain of 79% in two days. (click image to enlarge) Stocks to Watch on Thursday Leading Stocks: Holding Above 30 DMA BIDU, CLB, BKC, NFLX, DLTR, HANS, ICE, ALGT, DLB, JEC, PWR, VPRT, AMZN, MON, USD, AAPL, CTSH, FLS, JOYG, APEI, AXYS, BAP, CAM, GMCR, GPRO, JCOM, JOSB, MUR, PETS, WMT, ATW, GR, BIIB, SLGN, SWN, SYNA, SNHY, EBAY, GES, SNA, ORCL, WRC, DECK, HDB, PCP, UYG, BLUD, FSLR, GME, ESI, WCG, RIMM, X, BDX, BYI, CBST, EZPW, HLF, MYGN, STRA, MCD, AMX, MHS, WAB, NIHD, FAS Moving Above 30 DMA = 8 AFAM, CHL, JW.A, K, MOS, NTLS, RBN, RCI Moving Below 30 DMA = 2 CPLA, GILD Staying Below 30 DMA DV, PCLN, ACN, PPD, ESRX, PSYS, TDG, SPWRA, AMED, GXDX, VAR, PCR Wednesday’s Action Moving Up: Doji – AEM, Hammer – GLD, INFY, GRMN Closed Above High of Low Day – NEM, PCLN, GDX, GG, Horizontal Breakout – GOLD, AFAM Bullish Engulfing – ADM, FSLR, CF, CNX, MS, BRCM, IPI, EBAY, KMT, COH, JASO, MOS, AGU, SCHN, X, BTU, FWLT, Higher High, Higher Low – ESRX, CLF, KRE, GS, KBE, Low Day – POT, MEE Moving Down: Doji – STRA Higher Low – BIDU, NDAQ Intermediate Term Market Trend: Neutral – SPX, Nasdaq, RUT Down – DJIA Short Term Market Trend: Neutral