The Hammer of Righteousness

• Posted by Greg Harmon
• on October 3rd, 2014

 

 

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Thursday’s price action in the index ETF’s was a Japanese candlestick called a Hammer. The Hammer has many connotations in society. The Norse God Thor wielded a Hammer as the protector or mankind. Powerful and for good. In the Japanese candlestick parlance it is a little different to start but gets to the same place. The Japanese word for Hammer, takuri, means “trying to gauge the depth of the water by by feeling for its bottom” according to Steve Nison in his book Japanese Candlestick Charting Techniques. And this describes the price action well. The long lower shadow, reaching for a bottom until it touches it, and then price reverting back higher. The bottom in the case of the SPY was at the rising trend line that has been in place since June 2013. The Hammer can be a signal for a reversal and trend change to higher, and that is where the power comes from. It needs confirmation from a higher close the next day and then it is deemed safe to play for upward price action. You can see in the chart that this happened the last time the price was at the support trend line and a Hammer formed in February.

The markets have come a long way since the Japanese rice traders of the 1700’s and the 7th Century appearance of Thor, but somethings do not change. This candlestick has a lot of information in it. It is a roadmap of intraday trader sentiment, a record of the battle of supply and demand. And for the majority of market participants, the victory of good over evil.   Will good prevail over evil to end the week?  I bet you never though this deeply about one point on a price chart before.

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