Yesterday, I was predicting a bearish reversal in the near term by looking at the negative divergence of the MACD histogram and the signal line of the Dow weekly chart. And today, STI did show some bearish strength that took over the market. Exactly what sort of bearish strength did the STI exhibit today? Should we suddenly go short after 2 months of long positions?
Well, the answer probably lies with the STI performance today.
- The biggest attention grabbing item has to be a gap between Wednesday's candlestick and today's. There is a gap of about 15 points! That is around 0.5% worth of the STI value. Furthermore, studying the 2 months candlestick patterns of the STI, everytime a black(bearish) candlestick appeared, it never appears in a negative gap, except today's. This is the first time a long black candlestick has formed totally below the previous day's candlestick with a gap in between.
- Downward momentum seems to be building too. Today, we witness the 2nd long black candlestick formed in consecutive days, together with 2 dojis that signify indecision. In market psychology, this is probably the stage where some realisation of a possible bearish trend starts to kick in and multiply. Once more catch on, we might soon see a real downtrend, breaking from the long uptrend we have been enjoying.
- MACD histogram is negative and increasing. This is the third red bar in three days. MACD and its signal are both reversing direction at the peak and pointing downwards.
- RSI is trending towards the 50 line pretty quickly.
- Volumes match the sell down today. In fact, this is the highest volume traded in this entire rally.
Telling? You judge yourself.
Source: Yahoo Finance (click here to go straight to chart)