Friday, November 16, 2012, saw major US indices make reversal days. Almost all – Dow Jones, S&P 500, NASDAQ and Russell 2000 – had outside reversal days. Dow and Russell 2000 also made bullish engulfing candles.
In outside day pattern the high of the day is higher than the previous day’s high and the low is lower than the previous day’s low. In bullish engulfing pattern the open and close of the day stay within the open and close of the previous day. These patterns are especially significant if they occur after a down trend.
Major indices have been declining for the past few weeks, which increases the chance of a reversal. Dow has been declining since making a high on October 5th, S&P 500 and Russell 2000 since September 14th and NASDAQ since September 21st. The 9-day RSI is also in oversold territory that it has not seen since May 2012.
Dow Jones broke the four month uptrend line in early October. Since then it retraced between 70.7% and 78.6% Fibonacci levels. It is also at a support level at the lows of the last week of June. The volume on Friday was higher than the volume on Thursday. If the market closes above Friday’s high than the chance of it rising to next resistance of 13039 increases.
S&P 500 made an outside reversal day but not a bullish engulfing. It is at 61.8% Fibonacci retracement level, finding support at the low made on August 2nd.
NASDAQ also made only an outside reversal day. Unlike other indices it declined more severelly and retraced 89% of the four month rally. It is finding support at the June 28th low.
Russell 2000 made both the outside reversal and bullish engulfing. Like Dow, it too retraced between 70.7% and 78.6% Fibonacci levels and finding support at the August 2nd low.