A 'Shooting Star' in the Magnificent Seven May Be Bad Company for the Market
We have now received a definite warning sign that the group is running out of momentum.
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Corrective action picked up steam on Tuesday, with breadth running close to two to one negative and a large number of stocks reversing to the downside after early gains. For the second day in a row, the S&P 500 SPY closed near the lows of the day after early strength.
The most negative technical action was a pattern in Japanese Candlestick charting called a "shooting star" in the Magnificent Seven MAGS. A Shooting Star is formed when stocks make a strong intraday push higher but then reverse and completely give it back. It is a sign that buying power is exhausted.
Here is what it looks like:
A Shooting Star needs a downside day to confirm that the pattern is a top, but it is a definite warning sign that the group is running out of momentum and will need to build some new support.
The poor technical action may have to do with the CPI report that is due out on Wednesday. The market has been generally unconcerned about inflation of late because of expectations of strong economic growth, but bonds are looking nervous, and after the Fed decision next week, expectations for additional rate cuts are low.
While this action is not very attractive right now, I believe that a deeper correction will set up a much better year-end rally. What we need is more worry and skepticism to kill the overly exuberant bulls that have gone too far, too fast, with a number of market sectors and Bitcoin.
Have a good evening. I’ll see you Wednesday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
