Wow, what a week!  Welcome to SEPTEMBER… If you feel like you’ve just gone 3 rounds with Mike Tyson, you’re not alone.  Unfortunately, it is likely to get worse going forward.  Stand-by for huge price swings in both directions…  This type of market is where Technical Analysis really helps us.  It provides guide rails for making decisions while avoiding emotional reactions.

While the daily price swings were HUGE, for the week the market didn’t really move too much… By Friday’s close the C fund was down 2.31%, S fund down 3.15%, I fund down 1.47%, and F fund up 0.16%.  Ironically, while the F fund was the only fund that moved higher for the week, it’s chart is the worse of all for going forward.  We’ll get to how that can be, using the F fund chart as a great example of Candlesticks.  

We have a LOT to cover this week!  Fortunately you have an extra day to digest the post before the market opens on Tuesday.  Get a cup of coffee and buckle up.  This is going to be a long post but well worth the read!

Also, you DO NOT want to miss the Weekly Update Show that will post to FB tonight (Sunday) at 6:30!  We do a deep dive into Candlesticks in a way that just can’t be conveyed in a written blog post.  It’s a long show, almost an hour, but one of the best we’ve done yet! 

Candlesticks

For a comprehensive introduction to Candlesticks, visit the StockCharts.com chart school here.  Below are the important Cliff Notes…

A Candlestick represents the price over a single time period on a chart.  One candlestick could represent one day, week, month, … depending on the chart.  The candlestick gives us a TON of important information in one simple image.  The basics of how to read a single candlestick are shown in the picture below from Investopedia.  You can read the full article here.  

The real value of candlesticks is in interpreting their patterns over the course of a defined time period. In  the 9 month weekly chart of the C fund below, each candlestick represents the price range over one week.  This week the price ranged from a high of 3588 to a low of 3349.  Because the body is filled in, we know the opening price (3509) was higher than the closing price (3426).  Understanding a single candlestick is pretty straight forward.  When looking at candlesticks on an actual chart, things get a bit more complex.  When the candlestick is RED it means the closing price is LOWER than the closing price of the prior candlestick.  When the candlestick is BLACK it means the closing price is HIGHER than the closing price of the prior candlestick.   

We take a VERY comprehensive look at candlesticks in this weekend’s Weekly Update Show!  It will post tonight (Sunday) at 6:30PM.  It’s a Must Watch! 

The 2 year weekly chart of the C fund below gives us a little more perspective.  The shadow or wick are the lines above and below the body of the candlestick.  This week, the shadows above and below the body were about even.  This is a pretty good indication of some market shenanigans; options traders driving prices up/down.  We also see this in the relatively high volume, especially going into a long summer weekend.  While the volume is high relative to the past several weeks, it’s much lower than during the March collapse or even the June correction.  Bottom line, this week could be the beginning of a downturn or correction but, I’m not yet convinced…  

The F fund is the worst chart of the group.  Hopefully you can see why by looking at this chart.  While the price for the week closed higher than last week, the reversal candlestick pattern and close below the 10WMA is very bearish.  I would NOT be buying the F fund here… IF this week’s candlestick had been reversed with the thin body on top of the shadow and closing above the 10WMA, that would be an extremely bullish pattern!  Makes sense?    

Daily Charts

A daily look at the C fund is a bit of a mixed bag.  On the one hand, the C fund definitely found support at the 3400 level.  This is a key support level being the prior high from February; a bullish sign.  On the other hand, 2 very high volume down days to end the week is never a good thing.  We’ll have to give it another day or two to see how this resolves.

The S fund chart is pretty strong here.  While it broke down thru its 10DMA, the S fund definitely found support at its 50DMA with a strong positive reversal day on Friday.  We want to see the S fund break strongly above 1600.  That would put the S in the same pattern as the C fund where the prior all-time high should act as a floor rather than a ceiling.

The I fund is probably the best chart of the week. Like the S fund, the I fund found support at its 50DMA.  Friday’s bullish reversal resulted in a positive day for the I fund.  A close above 66 would be confirmation of a new rally for the I fund.  A close below 64 would be a problem…

Bottom Line: This week’s price action shook the foundation of our rally but has NOT YET caused any permanent damage.  As we’ve discussed throughout the post, some important support levels were tested and held this week; a very bullish sign!  On the other hand, a reversal after only 2 days of selling indicates a lack of capitulation (i.e. people were Buying The Dip late on Friday).  The Bulls and the Bears are beginning an epic struggle.  Next week should be very interesting… Stay tuned!

Have a great Labor Day Weekend!

Jerry