Market update July 28, 2011

So, today market printed lower volume inverted hammer candle. Intraday, market direction was up until 12PM Eastern and then it spent the rest of the day giving it all back and then some more. Over all it was more of a day of rest after yesterday's high volume wide range decline day.

In my experience, an inverted hammer during a down swing can signal a reversal but for that to happen, the volume has to be higher than previous day. That is not the case here. But this doesn't mean that we cannot get a reversal as market is at the confluence of 61.8% fib retracement and lower Bollinger band while 200 day SMA is 1.5 points away. These are likely to provide some support.

Shanghai Composite Approaching 61.8% Retracement

Shanghai Composite near 50% retracement

From the October 2008 bottom, Shanghai Composite has climbed substantially. During this run, excluding the current one, there have been two retracements both close to 61.8%. The current retracement is close to the 50% mark. From MACD at the bottom, we can see that the current retracement is sharpest of the 3 during the past 52 weeks. Whether this retracement stops around 61.8% remains to be seen.