Engulfing Candle

ATM Trading Club Newsletter

Thursday, June 20, 2024

The image shows a Bearish Engulfing candlestick pattern. This pattern typically indicates a potential reversal from an uptrend to a downtrend. Here’s how it works:

1. First Candle: A bullish (green) candle indicating a continuation of the uptrend.

2. Second Candle: A bearish (red) candle that opens higher than the close of the first candle and closes lower than the open of the first candle. This candle completely engulfs the previous bullish candle.

The appearance of a Bearish Engulfing pattern at the end of an uptrend suggests that the bears have taken control, which often leads to a price decline.

### Key Points to Note:

- Trend Reversal: This pattern is a strong indication of a trend reversal.

- Volume: Higher volume on the second (bearish) candle can increase the reliability of the pattern.

- Confirmation: Traders often wait for confirmation on the next candle, such as a lower open, to validate the bearish sentiment.

### Trading Strategy:

- Entry Point: Consider entering a short position after the formation of the pattern, ideally on the confirmation candle.

- Stop-Loss: Place a stop-loss above the high of the engulfing candle to manage risk.

- Target: Look for support levels or use technical indicators to set profit targets.

By recognizing this pattern, traders can make informed decisions and potentially profit from the anticipated downward move.

Market Analysis for Thursday, June 20, 2024

SPX is currently within the buy zone, which is defined by the break and retest of the June 17 breakout. Today, Thursday, June 20, we saw the index dip halfway into this zone, reaching 5455. Buyers stepped in at this level, pushing the price back up to close at 5473.

Key Observations:

1. Buy Zone Interaction:

- The chart indicates a critical buy zone, formed by the break and retest of a significant level from June 17.

- The price action today confirms the strength of this zone as buyers defended it, stepping in at 5455 and driving the price higher.

2. Volume Analysis:

- The volume bars show increased activity during the dip and subsequent recovery, suggesting strong buying interest at the support level.

3. Technical Levels:

- Support: The 5455 level within the buy zone proved to be a strong support today.

- Resistance: Closing at 5473 indicates a potential resistance area near the upper boundary of the buy zone and recent highs.

Implications for Future Trades:

- Bullish Scenario:

- If the SPX continues to find support within this buy zone, we could see further upward movement.

- Key levels to watch would be the next resistance zones and previous highs around 5500.

- Bearish Scenario:

- Should the index fail to hold the 5455 level on subsequent tests, we might see a deeper retracement.

- Critical support levels below the buy zone will then come into focus, such as the pivot point around 5434.91.

Conclusion:

Today’s price action reinforces the importance of the identified buy zone. Traders should watch for continued buying interest at this level, while also being cautious of any signs of weakening support. This zone's integrity will likely guide the market's direction in the near term.

Additionally, note that there is still a gap to be filled between 5375 and 5402.

Friday's Market Outlook: Quad Witching Day and Profit-Taking Potential

In the year 2024, the quadruple witching dates are projected to be: March 15, 2024. June 21, 2024. September 20, 2024.

As we head into Friday, a known profit-taking day, we also face the complexities of Quad Witching. This could lead to significant adjustments in the last 30 minutes of trading. Here are the plays to consider based on varying market conditions:

#### Call Vertical Zone

- 5485 and 5490: If you can capture premiums towards the 5500 mark, this should present a favorable trade.

#### Put Vertical Zone

- Support Levels at 5450 and 5455: While this zone is a bit risky due to the possibility of buyers dipping lower for a better entry, keep an eye out for divergence in the MACD and a falling VIX. If these conditions aren't met, then the lower support zone will be your buy point.

Ensure to monitor these indicators closely to make informed decisions in this volatile environment.