Throwing Down the Hammer!

• Posted by Greg Harmon
• on August 28th, 2015

TGIF, we made it to Friday! With a wild week in global stock markets through the first 4 days there will no doubt be some destressing after today, or as Art Cashin might say, ‘better get some extra ice cubes’. Spouses and significant others, expect your financial world partner to get home late tonight.

Some much has happened with interventions, interest rate cuts and discussions in China and here that there a lot of confusion. And next week will likely be volatile as well after processing the news out of Jackson Hole this weekend and then the non-farm payroll numbers at the end of the week. But before you turn to next week there is some unfinished technical business this week, and Thor has something to say about it.

Coming into Friday, the S&P 500 has moved in some of the biggest one day movements in over a year. But if you look at that chart above of weekly price action, the real body of the candlestick has a very narrow range. There is a very long lower shadow alright, but a tight real body. After the long red candlestick the prior week this will be described as a Hammer if it holds up Friday. And the pre-market action suggest that is a real possibility.

A Hammer is important in that it is often a signal for a reversal. If you are not a student of technical analysis then bear with me for a few seconds. It shows an open Monday at a lower level and then a hard move lower through the week that was bought. Sellers in control early to create the depth of the candle, and then buyers in control later to drive the Index higher and create the shadow or tail. You can see that it was a Hammer in October 2014 that signaled the turn back then.

This Hammer also comes with the real body holding just over the 100 week SMA, a significant moving average, and prior to Friday just under the 10 month trading range. But for it to be a reversal and not just a wasted signal, it needs to be confirmed next week by a higher close on that non-farm payroll day.

There are some indicators that support that possibility. The Index is outside of the Bollinger Bands®, a place where a snap back often happens. It has thus far made a low higher than the October 2014 low. And the RSI is turning back to the upside. None of these guarantees a move to the upside next week though.

As a long term investor or trader this is an opportunity to buy stocks at a good discount. But with a pretty tight leash on your capital. Placing a stop loss under the 100 week SMA and real body of the Hammer gives you the upside if the reversal occurs, and protects your money is it fails and there is another leg lower.

Get my ebook, Markets for 2015 and Beyond, a long term forecast with all proceeds going to charity.

Want to learn more about Dragonfly Capital Views?
Dragonfly Capital Views Performance Through July 2015 Expiry and sign up here

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