To The Moon

We just saw a BIG bearish indicator on $SPDR S&P 500 ETF Trust(SPY)$ SPY - a shooting star candle!

A shooting star candle is a bearish reversal pattern that consists of a single candlestick. It is characterized by a long upper shadow, a small real body, and little or no lower shadow. The long upper shadow indicates that the price of the asset rose sharply during the day, but then closed near the open. This suggests that buying momentum was waning and that sellers were starting to take control.

Shooting star candles are most effective when they occur after a period of strong uptrend. This is because they signal that the bulls are losing their grip on the market and that a reversal may be imminent.

Here are some of the key characteristics of a shooting star candle:

Long upper shadow: The upper shadow should be at least twice the length of the real body.

Small real body: The real body should be small, typically no more than half the length of the upper shadow.

Little or no lower shadow: The lower shadow should be either very small or absent altogether.

Location: The shooting star candle should occur after a period of strong uptrend.

Shooting star candles can be a useful tool for technical traders. However, it is important to remember that they are not always reliable. It is always best to use shooting star candles in conjunction with other technical indicators to confirm a bearish reversal.

Here are some of the factors that can increase the reliability of a shooting star candle:

Large volume: A shooting star candle with a large volume suggests that there was a significant amount of selling pressure at the end of the day. This increases the likelihood that a reversal is underway.

Confirmation from other indicators: A shooting star candle can be more reliable if it is confirmed by other technical indicators, such as the moving average convergence divergence (MACD) or the relative strength index (RSI).

There have been several shooting star candles seen in the daily chart of SPY over the last 1 year, and some have indicated a local top, with a downtrend seen in the next 1-4 weeks. However, the market has been resilient since bottoming in Oct 2022, and all downtrend losses have been recovered and SPY has continued to push higher.

Volume is highest today compared to the last 4 days, however it has been a shortened trading week with a holiday. Yesterday's volume is still lower than on 30/6 where we had a large gap up.

We see RSI divergence on SPY with price forming a higher high but the RSI forming a lower high. This may indicate a weakening of price action but not a reversal of trend.

How should we act based on this information? Personally, I am still positioned long, but would be more cautious on trades, and take profits in a disciplined manner. Do not chase moves up, and wait for price to confirm your thesis before you enter. Have disciplined stop losses to avoid unexpected moves.