Why You Wait for Confirmation: Spanish Case Study

The Spanish market ($IBEX, $EWP) had a hard week last week. After making a new higher high on Monday it sold off the rest of the week, ending with a Spinning Top Doji (blue circle). Either a Spinning Top or a Doji or the combination are often quoted as reversal candles. This is because after a large move in one direction, in this case lower, the price action continued lower and then rebounded, to an equilibrium of buyers and sellers. That thinking is only partly correct. In fact these candles can be reversals, but they can also be continuation candles. A better interpretation is that

ibex

the balance between buyers and sellers signals indecision about the next direction and that confirmation is needed to determine continuation or reversal. Clearly in this case it was just a pause before continuing lower with a strong Marubozu candle. That is a candle that shows meaning. Starting at the high of the day and finishing at the low, there is no mistaking who was in charge in the Spanish market Monday.

Join the Dragonfly Capital Views Premium Membership

Sign up here to get deeper analysis and nearly 50 trade ideas every week.

Dragonfly Capital Views Performance Through January 2013 Expiry

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus
Dragonfly Caps Blog