Feb
23

Candlestick Pattern Suggests a Down Day

By on Tuesday, February 23rd, 2010 at 2:14 am

Correction regarding an earlier intraday update as S&P futures did not post a seventh higher high Monday. Additionally, the final number of new 20-day highs came in at 1689, above Friday’s close, so actually wrong on both counts. One noteworthy price pattern was triggered Monday that has similar implications – S&P futures managed a seventh consecutive higher close but settled below the day’s open (regular trading hours), drawing the first black candlestick in over a week. When three consecutive higher closes with white candles are followed by a fourth higher close with a black candlestick, it’s a good sign of short-term trend change. The last thirty occurrences are listed in the table below…

S&P Futures Post Three Higher Closes w/ White Candles
followed by Fourth Higher Close w/ Black Candlestick
02/22/10… S&P futures ??? next session
01/11/10… S&P futures -0.8% next session
12/23/09… S&P futures +0.6% next session
11/11/09… S&P futures -0.8% next session
10/12/09… S&P futures -0.3% next session
07/21/09… S&P futures -0.4% next session
01/06/09… S&P futures -2.7% next session
05/30/08… S&P futures -1.1% next session
11/30/07… S&P futures -0.6% next session
04/09/07… S&P futures +0.1% next session
11/16/06… S&P futures -0.0% next session
09/15/06… S&P futures +0.2% next session
04/21/06… S&P futures -0.2% next session
03/17/06… S&P futures -0.2% next session
07/14/05… S&P futures -0.0% next session
11/01/04… S&P futures -0.0% next session
05/28/03… S&P futures -0.3% next session
10/20/98… S&P futures -0.1% next session
01/30/98… S&P futures +1.6% next session
06/16/97… S&P futures -0.2% next session
12/20/96… S&P futures -0.4% next session
05/15/96… S&P futures -0.1% next session
02/07/95… S&P futures -0.1% next session
01/27/95… S&P futures -0.3% next session
10/13/94… S&P futures +0.5% next session
01/15/93… S&P futures +0.2% next session
12/22/92… S&P futures -0.2% next session
11/30/92… S&P futures +0.0% next session
05/22/89… S&P futures -1.1% next session
01/30/89… S&P futures +0.7% next session
01/16/89… S&P futures -0.2% next session

Note that in 22 out of the last 30 occurrences, or 73% of the time, S&P futures settled lower the following session. That’s a strong edge considering the random chance for a lower S&P close one day later in the same time frame is only 46%. Losses were generally on the small side, with only five cases leading to more than a 0.5% drop the next day and only one leading to more than a 1.1% drop. That’s interesting considering the BKX/SPX divergence signal was triggered Monday (see this January 20th column), suggesting the potential for an outsized move (+/- 2%) looking out two trading days. Assuming a small down day on Tuesday, we’ll want to look for additional clues as to whether that trend will continue or reverse on Wednesday.

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Comments, data and trading signals herein are for informational purposes only and are not recommendations to buy or sell. All information presented is believed to be accurate but is not guaranteed.