This week the markets gave what market technicians have been looking for, and that is, a pullback! After three days of a sell-off which was long overdue, equtites for the most part held true to form and closed the week on a high note. Let’s take a look at the chart of the S&P 500 Index chart. By looking at the candlesticks on the daily chart you can see from Tuesday through Thursday the retracement that occurred. I was paying closer attention to the RSI technical indicator at the top of the chart as it broke down through the 70 value(overbought) level. Notice how it approached the 50 or so value level and traded around there. Most technicians view this level as confirmation as to the continuing direction or a turning point, in fact they will use the 50 value level as the actual “trigger” to put on their position. So had the RSI continued through 50, certain traders and technicians might of put on some sort of short position(same principle applies to an oversold condition). The fact that it held and turned up certain traders and technicians might of put on some sort of long position. Please note this is technical analysis only and does not consider macro factors.
Time will tell whether today’s action was a head fake or not. I think that question will be answered over the coming weeks with all eyes on the geopolitical turmoil in the middle east and the future price of oil.
Have a great weekend 🙂