In the wake of Bernanke’s testimony before Congress and the release of Federal Open Market Committee (FOMC) meeting minutes, the U. S. stock market traced an ominous technical pattern.
In traditional technical analysis, this pattern is known as an “outside day.” The outside day is visible on the chart of the SPDR S&P 500 ETF Trust SPY.
Please click here for the chart.
A similar pattern is seen on other broad index ETFs such as PowerShares QQQ Trust Series QQQ and iShares Russell 2000 Index Fund IWM .
An outside day is characterized by a high higher than that of the previous day and a low lower than that of the previous day. An outside day is considered especially ominous if the close is near the day’s low and if the outside day happens after a sustained bull run.
The proprietary sentiment indicators at The Arora Report have approached close to the extreme levels that are often seen at market reversals. Bullish sentiment at extremes is a contrary indicator.
High-beta stocks have been rocketing to levels that are usually followed by corrections. On May 21, I said that shades of 1999 serve as warning for investors, and gave examples of extraordinary runs in solar stocks such as First Solar FSLR , SolarCity SCTY, SunPower SPWR, J.A. Solar Holdings JASO, Real Goods Solar RSOL and others. RSOL went from under $2 to $7.20 in two days. JASO went from $5.60 to $11.40 in two days.
As a reference, take a look at how fast Apple AAPL +0.56% fell after it traced an outside day on the launch of iPhone 5…Read more at MarketWatch
