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Thursday, May 23, 2013

Bearish Outside Candle

Putting in a Bearish Outside Candle Today, by Mark Hanna, Market Montage,May 22, 2013

In the days before Japanese candlestick charts were ever heard of in the Western hemisphere, this formation used to be called a Key Reversal Day, and it deserves close attention because it has marked many a turning point in the markets. Reviewing the rules for an old-fashioned Key Reversal Day (after an uptrend):    
Today's open must be above the previous day's close (it was, but just barely);
Today must make a new high;

And today's close must be below yesterday's Low.
This was a response to one sentence from Bernanke: "If we see continued improvement and we have confidence that that is going to be sustained, then we could in -- in the next few meetings -- we could take a step down in our pace of purchases."  This demonstrates just how addicted the market has become to  QE and what the consequences will be when it is withdrawn.

Especially in light of AAII investor sentiment simultaneously reaching a bearish extreme, this could well be the beginning of the long-awaited correction....

The indexes along with a host of stocks are putting in a bearish outside candle today (over yesterday's highs and below yesterday's lows).  Typically this is … well bearish.  But in the QE era when a technical signal screams bearish it has tended to be completely forgotten within a few days, causing those who follow it to get squeezed if you are short or left behind if you go to cash.  This is the difficulty of the current market – QE causes it not to behave as normal.  In the "old days" today would be a day to take major note of.
The RSI I noted at an extremely rare 75 this morning, is now down to 63 …

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