Monday, September 9, 2013

Market undecided, Doji pattern

After the sharp gains in the last 3 days, market is now at the crossroads. We see a Doji pattern - long shadows and small body of a candle - which indicates the market (market players) hesitates over the direction. Shall we still push higher or brace ourselves for a (sharp?) correction? One could only expect that after rather exhausting bull run there comes a time for a rest.

What caused today pause in the run? Some say it was due to a relatively poor result of an auction, few cents under the market and relatively low bid-to-offer cover ratio. However, think this, at the time of auction clearing, some +6m EUA were traded already, whereas in the past (especially in August), the auction usually was the start of the trading on a day. You can only imagine that once the buyers chased up the market to 5.56, the demand in auction was somewhat limited.

It is crucial to understand, that Doji doesn't mean a reversal or an end to a trend. It just shows indecision. Doji is a rather strong sign that the trend is losing steam, so it is advised that any remaining open positions (in line with the trend) should be closed or limited in size. In the end, the market may, very well, continue to follow the trend - to go higher in our case, as the chart is still bullish. Place your bets.

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