A Hammer Reversal?

The S&P 500 was forming a triangle chart pattern, which more often than not is a continuation pattern, meaning further downside was the more likely result.

We are in a market correction. Many analysts and traders are looking for evidence of a rebound (after all, corrections don't last forever), and many are thinking a bear market has started (and they seem to last forever).

With yesterday's market action, the S&P's chart may be forming a bear flag. A flag is a small rectangle pattern that reverses against the previous trend, but the end result is usually a continuation in the original direction.

The S&P 500 may rebound here. A ‘hammer' candlestick pattern was formed, and if the following trading session opens higher and closes even higher, a rebound is likely to follow (see Definition of ‘Hammer'). How far it goes is the big question.

I am currently short Goldman Sachs (GS) in the Seasonal Forecaster newsletter. GS has a nearly identical pattern to the S&P's chart above. Having entered the short a week ago, this trade has gained 3.3%.

But there is some good news this morning. It's not much, but this market is grasping for straws. Fed Chairwoman Janet Yellen tried to counteract the uncertainty on interest rates that was left after the recent Fed announcement, saying that an initial rate hike was likely this year. Odd as it may seem, that was regarded as positive news. So the markets will likely open on the upside this morning, and yesterday's hammer pattern in many indexes and stocks will appear prescient, and at least a short rebound will occur.

But notice on the chart above that yesterday's action has a lower open, and a lower close from that open, and volume was slightly above normal. There was no capitulation here. No ‘time to sell the farm and buy stocks' sentiment. A rebound may follow, but I don't see evidence it will go far.

Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day.  To find out more, please click on the following link: www.markettamer.com/seasonal

By Gregg Harris, MarketTamer Chief Technical Strategist

Copyright (C) 2015 Stock & Options Training LLC

Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.

Gregg Harris is the Chief Technical Strategist at MarketTamer.com.

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