It’s always makes for an interested day when we get an FOMC announcement. Yesterday, as I’m sure you already know, the Fed essentially dropped its dual mandate and said their concern is squarely set on unemployment.
The market rallied on the announcement, but after Bernanke’s press conference and Q&A was underway traders began to sell, causing the major indices to be nearly flat for the day. This price action caused two interesting candlestick formations to appear in the S&P 500 and Russell 2000.
First up is the iShares Russell 2000 ETF ($IWM). We started the day with a gap higher only to retreat with a close below the day prior’s low. This creates a bearish engulfing pattern as yesterday’s price fully ‘engulfed’ Tuesday’s candlestick. This type of pattern typically occurs at the top of a trend due to the shift in sentiment occurring after a morning gap higher only to be stamped out by bears.
Next we have the S&P 500 ($SPX). Equity bulls were able to take us higher as described above after the FOMC announcement, only to close just slight above the open. This price action created a large wick for the day’s candle (sometimes called a tail or shadow). While the bears weren’t able to get the close to be under the open, a mild version of the shooting star formation was still created.
Both of these patterns are in favor of the bears on a very short time frame. Single candle patterns are unlikely to sway intermediate or long-term traders/investors but are still interesting and should be observed nonetheless. We’ll see if today’s action is able to confirm these setups by pushing down large and small caps further or if equity bulls will recover and retake the reins.
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.
