Market outlook May 27th: Rally in the face of a Bear market

Yesterday's close had all the makings of a Hammer Candlestick pattern, as the market closed very close to the bottom of the day's trading. This set up the following comment from AmericanBulls.com on the S&P 500 Candlestick pattern for the past 2 days of market action:

The last two candlesticks formed a Bearish Dark Cloud Cover Pattern. This is a bearish reversal pattern that marks a potential change in trend. Though it is highly reliable confirmation is still recommended.

The Futures are up significantly and we are about to pop on the latest good news on the Initial Claims number, which was down 14,000 to 460,000. Also out this morning was initial GDP for Q1 which is estimated at 3.0%, down from an earlier estimate of 3.2%. Dow and S&P 500 Futures dropped a bit but the way seems clear for a rally today.

Market outlook for June 4, 2009 and beyond

Yesterday's action on the 3 major Indexes pointed to a reversal in trend. The Dow finished the day at 8,675 and the candlestick pattern for the day was a Hammer. The last 2 days formed a Bearish Engulfing pattern which marks a potential change in trend. The Nasdaq closed at 1,826 and the candlestick pattern was a Doji. The last 2 days its candlestick pattern formed a Bearish Harami Cross Pattern, also marking a potential change in trend. Both the Dow and S&P patterns are not reliable and need confirming. However, yesterday's close for the S&P 500 at 932, formed a Bearish Evening Star candlestick pattern for the past 3 days, which is highly reliable, signifies a trend change, As I am writing this, we are 10 minutes before the weekly Jobless Claims are reported. If this does mark a change a trend up, it is better not to be buying any stocks right now, until a signal of a reversal comes again. One other point, the reversal can last one day, one week or longer, so while this change in tend has been awaited for a while, it can end quickly and reverse up on any news that is good.

The Total Put to Call ratio hit a high during the day yesterday of 1.10 and closed at 0.96, the highest levels since April 7th. The Put to Call ratio on Indexes was as high as 1.63 yesterday, corresponding to the timing of the Total Put to Call high during the day. You can see this data for yourself during the day by going to the CBOE website and clicking on the Menu Bar titled Data and selecting Intraday Volume.

We are in the range between 7,300 and 9,300 and it is difficult to predict when that pattern will change, but that is still a healthy 27% range to make money. I hope I can make up some losses now on the ETF Short TZA for a while. AS I end this post Futures are pointing up in advance of the Weekly Jobless Claims numbers coming out in 5 minutes. I will add the UPDATE when the numbers are reported below.



UPDATE: 5:35am PST

Weekly Jobless Claims came in a little better at 621,000, down about 4,000 less jobs lost than the previous week. Continuing Claims continued at 6.735 Million jobs for the week of May 23rd. It is the first drop in weekly Claims since January.