Top Advisors Corner

David Keller: Friday as a Market Microcosm

David Keller

David Keller

Chief Market Strategist, StockCharts.com

I was in New York last week and as I landed back in Cleveland I checked the market action leading into Friday’s close. I realized that the chart of Friday’s price action was a microcosm of what we’re seeing in the markets and thus confirmed my lukewarm enthusiasm for the coming weeks.

I first looked at a 5-minute chart of Friday’s price action.

Here we see a selloff around 10:00am and a quick reversal back to the high of the opening range. Then around noon, a steep selloff to take the SPY down to a low for the day around $290. Then a slow and steady gain back to close right about at the opening price.

This, my friends, is how indecision looks on a chart. There are periods of distribution and periods of accumulation, but in the end, the price doesn’t really go anywhere.

On a daily chart, Friday’s price action comes out as a “hanging man” candle, which is a long shadow and a small real body near the highs.

This tends to be a short-term reversal signal, because as we saw on the intraday chart, there is a lack of momentum here. Neither bulls nor bears are taking control, and the price is relatively directionless.

As I thought through these charts over the weekend, I realized that Friday’s price action is a microcosm of what we see in the markets.  

Overall, the S&P 500 is undeniably in an uptrend, with a consistent pattern of higher highs and higher lows. However, when you look at the stock level, you see divergence between names even within the same sector.

For example, in technology you have Microsoft continuing to new highs while Intel continues to find new lows.

Within the financial sector, you have American Express breaking to new highs with T. Rowe Price bouncing off of recent new lows.

There have been times, quite recently, where it has felt as if every stock in the US was in a slow and steady uptrend. Based on Friday’s price action and the divergence within certain sectors, those days of slow and steady gains may be behind us.

David Keller, CMT
President
Sierra Alpha Research LLC

David Keller, CMT is President of Sierra Alpha Research LLC, a boutique investment research firm focused on managing risk through market awareness. He is a Past President of the Chartered Market Technicians Association and most recently served as a Subject Matter Expert for Behavioral Finance. David was formerly a Managing Director of Research at Fidelity Investments in Boston as well as a technical analysis specialist for Bloomberg in New York. You can follow his thinking at marketmisbehavior.com.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.  

The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

David Keller
About the author: , CMT is Chief Market Strategist at StockCharts.com, where he helps investors minimize behavioral biases through technical analysis. He is a frequent host on StockCharts TV, and he relates mindfulness techniques to investor decision making in his blog, The Mindful Investor. David is also President and Chief Strategist at Sierra Alpha Research LLC, a boutique investment research firm focused on managing risk through market awareness. He combines the strengths of technical analysis, behavioral finance, and data visualization to identify investment opportunities and enrich relationships between advisors and clients. Learn More