On Monday the nerves in equity markets saw a flood of buyers coming into the bond markets. All things considered it was not the bloodbath that seemed to be on the cards and as such the buying dried up here in the Bund. The resulting Candlestick is called a Spinning Top. This is a reversal pattern and although not generally a strong one, the resulting sell off on Tuesday was pretty hard. It’s interesting to note that the failure from 118.48 was not that far below the key high from the beginning of December at 118.88. Our old friend the Marabuzo line comes into play here at 117.75 but may not carry too much weight in these volatile markets. Our close in relation to this level will be important though.
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Indicators in Play
A Spinning Top is when the open and close are close to the middle of the range on a day where the market has made new highs or new lows. This shows an evening out in the balance of power between the Bulls and the Bears.
If the open and the close are close to the bottom of the range this then becomes a Shooting Star. This is a more potent reversal signal as we would have started the day low, made good gains and then given them back showing that the Bears are gaining the upper hand.
Summary
In the longer term we are still with the Bulls but unless we can get back above yesterdays high at 118.18 then the likelihood of further pullbacks is quite strong. Selling into any strength to this point is the short-term play but a tight stop will need to be employed.
David has been
analyzing and trading the worlds financial markets for the past 25 years. After an initial grounding with Mercury Asset Management and Warburg Securities he went on to set up his own brokerage operation in London. Since then he has appeared regularly on Bloomberg Television and been involved in providing analytics on behalf of some of the worlds major exchanges. He is also a member of the Society of Technical Analysts.
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