Something to Watch

In Friday's trading, something happened that hasn't happened in a while, and because people tend to focus on certain things, like the Dow, or the Russell, or the S&P, or the futures, we wanted to bring your attention to it.

This chart is of the daily Dow Jones Transportation Index.

DJ Transportation Index - Daily

The chart shows one of the best examples of a "key reversal day" that you may have a chance to see. Note, there is an "outside" bar, with a higher high and a lower low than the day before. And, further, the close is actually below the lowest low of the prior day. And what makes this a "key" reversal day is the highest high is a new all-time high. You don't see them like that too often.

This price bar occurred on a clear divergence with the oscillator shown in the lower panel, and made the largest price point loss for a down day since the recent up trend began at the end of August 2017. Now, by definition, an outside key reversal day is also what's known on a candlestick chart as a "bearish engulfing" candle.

So far, price has not broken that daily up trend line, nor filled the prior gap, although it did fill the gap the bar created on the open. So, this price structure bears watching carefully at this point in time. Usually in Japanese candlestick interpretation, a further lower closing candle is required to confirm the bearish engulfing pattern, and "trigger it".

As it is, the bar is definitely a marker bar because, as Ira Epstein might interpret it, "if the high of an outside day down is taken out in the next two trading sessions, then it might set a trap for the bears." Otherwise, continuation lower might be indicated.

We know that Crude Oil surged towards the end of the day on Friday - which might help "explain" the movement, but it is there none-the-less. It is also possible to see a completed five-wave up move in the Transports to this point in time. And, of course, with this move, all of the gaps in the chart of  the Transports are to the down side as of now.

So, this is one to keep your eye on next week.
Have a good one!
TraderJoe