Interesting observations in the US Markets last week:
· The benchmark indices – SPX, NDX and DJI, are in weekly uptrend
· Double top formation observed in daily timeframe was convincingly failed on Friday 11th October, after the indices gapped up with increasing volume
· This breakout candle was seen forming however has not followed through, suggesting the market is yet to show bias in near term.
The week ending 11th October was very interesting in terms of market movement. Almost on a daily basis the market was gapping up or down significantly, leaving investor and trader community wonder what was in its mind.
In daily picture – all the indices – SPX, NDX and DJI had formed a double top over past three months. On Friday, there was a clear breakout from that formation, as the market gapped up and rallied.
Interestingly however, this breakout candle did not show expected shape suiting a breakout. By close of the market, the candle had taken shape of a shooting star.
On Monday, indices did not show follow through. Markets had insider day, mostly within very narrow range. This is an indication that the market as of now is not fully committed to the breakout, and movement in either direction is likely.
Below is the hourly picture in SPY – the SPY tracker ETF. We see that the market rallied with increasing volume on Friday, and then reversed once it hit the supply area 298-300. On Monday 14th October, it traded in a very narrow range. While it has open gap below which goes to 293, on the upside it has supply area at 300. From what we see, the market is undecided, and either direction is likely.
US Markets Outlook Ahead:
We are having slight bias towards upside for Tuesday open. Firstly, the way market held up above the gap suggests that there is still some buying pressure. SPY is testing 20 SMA on hourly chart, which is watched by many intraday market players. If this holds, we may see some movement to the upside. Finally, overnight market activity was above this area of consolidation, suggesting that the market is likely to gap up at open on Tuesday 15th October. A break above 300 would be a clear sign of continuation of bull trend.
However, if SPY starts trading below 295, it will be sucked into the gap and we shall have a case for a failed breakout. We are looking forward for the market to tell us where it wants to go.