Stocks rebounded last week and recovered part of their losses from the prior week. Long black candlesticks formed the week before Christmas and most sector SPDRs recovered with long white candlesticks the following week. A black candlestick forms when the close is below the open, while a white candlestick forms when the close is above the open. Chartists can compare the last two weekly candlesticks to find the sectors that recovered the most.
Before looking at a weekly candlestick pattern, note that the S&P 500 SPDR (SPY) is in a long-term downtrend and almost all sector SPDRs are also in long-term downtrends. 10 of the 11 sector SPDRs closed below their 40-week SMAs last week. Only the Utilities SPDR (XLU) remains above its 40-week SMA. Thus, a bullish candlestick pattern within a long-term downtrend argues for an oversold bounce (at best), not a major trend reversal.
The Financials SPDR (XLF) formed a piercing pattern because the weekly open was below the prior close and the weekly close was above the mid-point of the prior candlestick body (open-close range). The bears were in control at the start of the week because prices initially moved lower. The bulls took over and gained control by the end of the week as prices moved higher after a weak start.
XLF also became oversold as the Commodity Channel Index (CCI) moved below -200 for the first time in over three years. The combination of a piercing pattern and oversold reading could give way to a bounce. There are broken lows in the 25 and 26 area, and a bounce back to the the 25-26 zone is possible.
Note that there were four weekly piercing patterns in the sector SPDRs last week (XLB, XLF, XLV and XLY). The other seven sector SPDRs did not manage to close above the mid-point of the prior week's candlestick. This suggests that these four sectors had the strongest bounces. StockCharts members can use the scan code below to find piercing patterns or bullish engulfings.
[symbol is 'XLK'] or [symbol is 'XLF'] or [symbol is 'XLY] or
[symbol is 'XLI'] or [symbol is 'XLC'] or [symbol is 'XLV'] or
[symbol is 'XLE'] or [symbol is 'XLB'] or [symbol is 'XLP'] or
[symbol is 'XLU'] or [symbol is 'XLRE'] or [symbol is 'SPY']and [Weekly Close < Weekly SMA(40,Close)]
and [[Weekly Piercing Line is true] or [Weekly Bullish Engulfing is true]]
On Trend on Youtube - Review & Preview
Available to all, On Trend can be see on StockChartsTV on Tuesdays and Thursdays at 10:30AM ET. Shows are then archived on our Youtube channel. The first video provides a preview of what to watch as we head into 2019. Note that this is NOT a forecast. The second video is a review of the big technical events in 2018. There were few gainers in 2018 and lots of losers. In addition, several key groups moved from 52-week highs to 52-week lows in just a few months.
2019 Preview
- 12 Breadth Indicators to Monitor
- Volatility has Yet to Spike
- Defensive Groups Not Immune
- Treasuries Bid for Big Reversals
- Monitor Trends and Benchmark Levels
- Pockets of Strength to Watch in 2019
- Click here to Watch
2018 Review
- Global Overview with 7 PerfChart Groups
- New High to New Low in Just a Few Months
- Evolution of New Lows from October to December
- Underperformers Throughout 2018
- Three Themes Affecting the Financial Markets
- Click here to Watch
- Arthur Hill, CMT
Senior Technical Analyst, StockCharts.com
Book: Define the Trend and Trade the Trend
Twitter: Follow @ArthurHill
