Hammer?

The stock indexes staged a late-day recovery. The day was another choppy roller coaster, with very negative sentiment during the session. It looked like typical capitulation. Every little rally for most of the session was met by fast liquidation. The length of the upswings was mostly very short compared to the length of the downswings. This changed later in the day and the Dow and S&P were actually up going into the close, although faded a bit in the final minutes. Still, the tail left by the sell-off leaves a fairly bullish looking chart pattern. The candle on the Dow min-futures chart shows the best formation. You can see where the day session opened (.D after the symbol shows this is the day session contract rather the 24-hour) at the lower end of the hollow box on the right side of the chart, and the close was the upper part of that box. The long tail under, and very short tail over the top, was the intra-day extremes, thus showing the area where lower prices were being rejected and responsive buying came in. Also, using the double stochastic the momentum has turn back up a bit, from oversold levels, and with a divergence. The momentum indicators based on closing price only are still pointing downward, but the stochastic is factoring in the low price on the tail in relation to where the market closed. So maybe the market is hammering out a short term bottom here, as indicated by my devilish graphic. The trend is still clearly down, but a bounce is overdue. If a bounce does come in, a retest of the upper part of the candle would be normal and healthy. If the market trades back into the tail of that candle, then more downside should be expected. Also, the financials, which were leading the way down, as mentioned yesterday, held that double bottom, and so far have bounced up off that, thus relieving some of the pressures and worry, at least for the moment. These market are a bit crazy, so expect anything and everything.

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