Wild day ends where it started, what does it mean?

August 26, 2015 09:43 AM
Of all the possible levels the September E-mini S&P 500 Index (ESU5) could have settled to, and to the quarter point there were 354 spots included in the trading range yesterday -- not to mention all possible levels outside the day’s trading range.
Instead of any other possibility, the futures contract settled EXACTLY where it opened. That it opened and closed exactly at 1872.25 is incredible, especially given the current environment. Additionally striking is that the open/close level, known as a ‘doji’ when they are same, was within a point of the prior session close.
Of course, the Monday session was hugely bearish and followed a strong bearish signal in a ‘three dark soldiers’ (another bearish Candlestick formation). Given the bearish nature of trade, we might have expected prices to fall further on Tuesday. However, upon awakening on Tuesday, many Americans found that the E-mini was well higher than the prior settlement. To this new price discovery they adjusted their consciousness.
When the E-mini fell late in the day, the reference point for most traders was that higher opening rather than the prior session close. When prices returned to the prior session close, the sense was that renewed bearish forces were at work to take prices still lower in the coming hours/days.
What candlestick analysis suggests is that the inability to continue lower on Tuesday, from close to close, suggests that the bearish momentum is waning and leaves room for a bullish response. The ‘doji’ earlier noted drives home the level of indecision on the part of traders and further questions the resolution of the bearish participants.
While there is much trading left in this session, we should be ready for what the closing level might tell us at the day’s end. Should prices remain firm and surpass the ‘mid’ (1918) of Monday at settle, we would expect the bullish contingent to become encouraged. If prices fall markedly and well below 1850, we would recognize that the bearish contingent has reasserted its influence and should be expected to carry prices still significantly lower. A settlement in the middle of those levels would suggest further that the bearish influence is waning and remains danger of correcting.
About the Author

Martin McGuire, managing director at TJM Institutional Services