SPY...Weekly bearish Engulfment

Well, it's the end of the week and thats when I look at all my weekly charts to see what took place. If you look at the above weekly chart of SPY, you will notice that for the past four weeks, buyers were unable to penetrate the 142.90 level. Notice there were four attempts at this level which failed and now a weekly bearish engulfment has formed with a weekly close below the uptrend line. Need I say more? Actually yeah, I do have more to say...Look at the next post about the triple MACD divergence sell signal.

DIA or Indu? Which To Use For Candlestick Charting

I just wanted to point something out today about using candlesticks on the Dow Jones Industrials because today is a good example of a common mistake I see people make in my opinion.
The top chart is a daily chart of DIA (ETF for the dow jones Industrials) and in the lower panel we have INDU. I think it's a mistake to use candlestick analysis on the INDU because all of the opens are unchanged... That's right, every open is flat and then once the components in the dow begin to open, the INDU will then move to reflect it's true value. So for example if the dow jones industrials are going to gap up on the open, INDU will first open unchanged and then rally. DIA is a much more accurate reading for candlestick charting. DIA will show the gap up.

Notice today INDU is a white colored bar and is almost a doji...but if you look at DIA you will see a completely different looking candlestick formation. This is not earth shattering news but it's something I wanted to share with you if you follow candlestick charts.. DIA is the better chart to look at when it comes to candlestick charting because it reflects where the dow jones industrials were really trading on the open.

XLE Caution If You Are Long

I'm becoming cautious on the energy sector (XLE) as we move into the new year even though the sector has been in a nice uptrend. You'll notice on the above chart that XLE (top panel) formed a weekly Bearish Engulfment. XLE has been reversing it's trend every time an engulfment candle appears. XLE had a bearish engulfment in October of 2005 and in January of 2006...Each of these candles correctly warned of a top. The bullish engulfment the XLE formed in September of 2006 also triggered a change in trend which began an eleven week rally. Now we have a bearish engulfment so right away a red flag should go up.

In the lower panel we have a chart of USO which is basically crude oil. Notice how the two markets (USO and XLE) correlate well with eachother. Both markets have been moving the same way until now. XLE has been trending higher while USO has been trending lower (August 2006 to December) . I take this as a bearish sign for XLE and when you combine this with the weekly bearish engulfment, I feel prices will go lower. So if you are long XLE, tighten up those trailing stops!