As part of the preparation of the day, you would want to know market sentiment, in particular to identify oversold or overbought conditions. Which indicators do you use?
I will start here and present the ISEE Index Chart, which is a free download. ISE also publishes intraday data every 20 minutes, does anybody watch these?
So below is the daily chart, which shows that investor sentiment yesterday was lowest since the beginning of 2009. Today it was even lower, but today's data is not yet contained on the chart.
So let us focus on values below 90, and see what happened afterwards (double days fat):
In the chart below I have marked these days with arrows, so there seem to be different interpretations. From the 12 signals that occured after September 2009
- 5 signals were dojis that occured after an upmove and predicted a reversal several days later
- 3 signals were narrow range bars that occured during a downtrend and predicted its continuation
- 3 signals were wide range climax bars that exhausted the downtrend
The last signal was today's. It is the most difficult to interpret, because it is the third consecutive signal.
Now, if there is any pattern at all - this would have to be tested for statistical significance - the hypothesis would be
(a) downside climax bar with extremely negative sentiment -> expect a reversal
(b) low range bar with extremely negative sentiment -> expect a downtrend to start or to reverse
So yesterday was a climax bar, but the reversal occured intraday, so it cannot be traded now. The market actually became so fast that it compressed a trading week into a one day, when the computer generated signals took the lead.
Today was neither a low range nor a wide range climax bar. So it is not clear which direction the market will take. Given the high volume of the two days, it should be
- either the breakout to a downtrend which will retrace a considerable fraction of last year's bull market
- or a short term reversal pattern
- or both, continued downtrend after short term reversal