Topping Tails Abound

Well, the market kicked off the new year with a strong gap up higher, but the close left much to be desired. $SPY, $DIA and $IWM closed near their lows for the day and many individual stocks ended with topping tails. A topping tail is often indicative of a short term reversal as it reveals a stock that moved higher throughout the day, but ultimately failed and closed well off the highs.

Below is an example of a topping tail in Sherwin-Williams Company (Public, NYSE:SHW). In fact, there are two good example of topping tails. One occurred during a late October breakout and of course the one that occurred today. As is obvious in looking at the prior tail in $SHW, the pattern does not always signify a major change in trend. It is simply a candle that reveals exhaustive behavior. A stock could recover shortly thereafter, or the topping tail could be the start of a more serious decline. However, more often than not, prices are flat to lower at least temporarily soon after the pattern.

With so many topping tails appearing in charts combined with the lackluster close in the indexes, I would be shocked if the general markets didn’t come back to fill the open gaps left behind today. If the markets can drift back and constructively build more support, then we may be on to something.

Good Trading,



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