Thursday, July 8, 2010

The Day of Spinning Tops

Do you remember when you were a kid and would get toys like these from Birthday party goodie bags, in your stocking for Christmas or as a dreidel for Hanukkah (guessing here as I am technically Catholic)? The hours of fun? Probably not as most of you are young enough to be my kids and only play video games, but trust me there was a time when this was cool.

Well there is more than one kind of spinning top and we saw many of them today of the Japanese Candlestick Pattern variety. The Japanese Candlestick guru Steve Nison defines a spinning top as a near doji with two long legs, but has also categorized short legged doji as spinning tops. So you can debate me as to whether today's action was a bunch of spinning tops or long legged doji, but the read is the same. The recent very short term up move has lost momentum and short term outlook is now at least neutral if not reversed.

For braoder appeal I will illustrate with the broad index ETFs although there are also many individual names that show the same pattern. I have cropped my SPY, IWM and QQQQ charts below to show the recent activity more prominently (typical 1yr+ charts at the end).

SPY Daily 3 Month Chart

IWM Daily 3 Month Chart

QQQQ Daily 3 Month Chart

In these charts you can see big up moves yesterday followed by these spinning tops or doji today. The SPY move stalled just below 107.73 20SMA and the support area from the last days of June. Volume fell off today and RSI is near touching 50. IWM moved into the box but stalled at the early June support level also with lower volume. QQQQ stalled at the late June gap down level on relatively moderate volume. You could make a case for all of these that they hit some kind of resistance. That is what is also pointed out in the Spinning Top patterns.

So now you have seen the down move over the last 2 months, were waiting for a bottom to get long again, and appeared to get the start of that move yesterday. Today's Spinning Tops or Doji's adding a possible change to neutral or down are a good illustration of why you seek confirmation of a trend change. Unless you are a nimble day trader who can react instantaneously when markets reverse you have to take today's action as a reason to watch a little longer before jumping in long.

Here are the longer time period charts to give you more perspective. i will post longer period charts on with support and resistance as well. Trade'm well.

SPY Daily 1 Year Chart

IWM Daily 2.75 Year Chart

QQQQ Daily 1 Year Chart

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