Discretionary Spending -- Another Look

The size of individual bars, as well as where low and high values occur convey a great deal of information. The chart below shows XLY for the past few weeks.

Note September 6. Open is at the low, close is at the high of the day and trading occurred over a very large range. That is what a strong day looks like. Who won, the bulls or bears? Clearly, the bulls had control all day.

Now look at the bars for September 8, 15, and 16. Here, the market was indecisive. Trading occurred over a small range, and the opening value was almost identical to the closing value. Who was in control on these days? Nobody. A bar like this signals indecision by the market. In candlestick charting, these are called Dojis. A Doji at resistance points to resistance holding.

Now look at the last few days. Large bars, so there is a battle between bulls and bears moving price over a wide range. But, these days open near the high and close at or near the low for the day. Ouch!! That reflects weakness, with the bears clearly in control (remember from the earlier post that these also had large volume -- another sign of bear dominance here).

The only good news, and I must say potentially good news, is that the last bar was not as long as the earlier ones. This usually indicates that the downward momentum is weakening. It is not a guarantee that the market will reverse, however.

Further evidence for the downward momentum to be near an end would be an RSI in oversold territory (below 30), or a bullish divergence (price declining, but the RSI rising).

Another possible indicator of a bottom is large "tails" on the bars, where the daily low is far below the closing value, so the bulls had some ability to prevent the market from reaching much lower by the end of the day.