Small Cap Network Blog

You probably know by now the market reached and stayed at new multi-year lows on Wednesday. Obviously that also meant those key support levels are broken (except for the Dow). Though the momentum seems bearish, there’s something that keep nagging at me, suggesting we shouldn’t get suckered into selling anything new at this point. 

Remember what I was saying a couple weeks ago about extremely big moves that end the day at the very end of the range? Those tall candlesticks with little to no wick are called ’Marubozu’ bars. Normally they’re interpreted at face value … a bearish Marubozu bar means more downside is on the way, and a bullish Marubozu means bullishness is in store. In the current environment though (the last two months), Marubozus have more often meant an exhaustion of that trend, and signaled a reversal.

Well, care to guess what kind of bar we got yesterday? I’ll give you some hints - the market was down a whopping 5%, opened at the highs for the day, and closed at the lows for the day. Yep… a Marubozu. Not that it’s the gospel, but we’ve just seen too many reversals following extreme moves lately to ignore this one, or to assume more selling is in store right away.

As I write this, the futures are in the red, which sort of works against my theory. Then again, the futures have been a meaningless indication of how we’re going to open lately. I’ll actually wait and see how we open, and then see how we progress.

If the indices get comfortable down here, then I think we all need to start hedging, buying puts, shorting, or whatever it is you do to stave off a selloff. Let’s see how things play out before pulling the trigger though.

Check my other forthcoming blog entry though - I’ll be looking at a couple of things that are close to pointing to bullishness.

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