Good stuff from Arthur Hill, including 2019 market forecast
Stocks rebounded last week and recovered part of their losses from the prior week. Long black candlesticks formed the week before Christmas and most sector SPDRs recovered with long white candlesticks the following week. A black candlestick forms when the close is below the open, while a white candlestick forms when the close is above the open. Chartists can compare the last two weekly candlesticks to find the sectors that recovered the most.
Before looking at a weekly candlestick pattern, note that the S&P 500 SPDR (SPY) is in a long-term downtrend and almost all sector SPDRs are also in long-term downtrends. 10 of the 11 sector SPDRs closed below their 40-week SMAs last week. Only the Utilities SPDR (XLU) remains above its 40-week SMA. Thus, a bullish candlestick pattern within a long-term downtrend argues for an oversold bounce (at best), not a major trend reversal.
The Financials SPDR (XLF) formed a piercing pattern because the weekly open was below the prior close and the weekly close was above the mid-point of the prior candlestick body (open-close range). The bears were in control at the start of the week because prices initially moved lower. The bulls took over and gained control by the end of the week as prices moved higher after a weak start.
XLF also became oversold as the Commodity Channel Index (CCI) moved below -200 for the first time in over three years. The combination of a piercing pattern and oversold reading could give way to a bounce. There are broken lows in the 25 and 26 area, and a bounce back to the the 25-26 zone is possible.
Note that there were four weekly piercing patterns in the sector SPDRs last week (XLB, XLF, XLV and XLY). The other seven sector SPDRs did not manage to close above the mid-point of the prior week's candlestick. This suggests that these four sectors had the strongest bounces. StockCharts members can use the scan code below to find piercing patterns or bullish engulfings.