THE BIG IDEA
Earlier this year, The Prime Wave took a look at the dreaded “shooting star” candlestick. Well, we have another shooting star sighting. This time in the S&P 500 itself.
In that previous edition of the newsletter, we said “the shooting star is considered one of the more reliable single‑candle bearish reversal patterns, but its power is highly sensitive to context.” The context, mostly, is about what had been happening leading up to the presence of the shooting star.
The chart on the left below is the S&P 500 that we all know and love. Friday’s trading clearly produced a shooting star. There was a strong bull run, which had the index at an all-time high. On Friday, the market opened higher still and ran even higher, only to reverse and close more or less where it started the day. It’s as if the market collectively decided that’s enough!
The chart on the right includes the exact same 500 stocks. But instead of giving the biggest stocks more weight in the index, this one counts 1 stock = 1 vote.
And that chart also features a shooting star on Friday. The thing is, the equal-weighted version of the S&P 500 actually peaked a couple weeks ago. To be meaningful, a shooting star needs to appear in an uptrend. Is the market in an uptrend or not?
The shooting star on the left has us concerned. The one on the right, not so much. And it is the same basket of stocks. Maybe we did not even see a shooting star after all.
On the other hand, if things do not go well for the market at the start of this week, we may see an “abandoned baby”. The condition is more commonly known in the West as an “island reversal”. The Japanese often have more vivid descriptions of their chart patterns.
Perfect textbook-style examples of abandoned baby tops are rare. If the market sinks on Monday, leaving Friday’s price range more-or-less separated from what happened before and after, we can go ahead and count it as an abandoned baby sighting.
If we do see an abandoned baby, it would be a strong signal that you should at least do some gardening in your portfolio. Maybe more.
Shooting stars that may or may not be there. Angry, abandoned babies. Could it all just be some weird, hazy dream?
SEEN ON THE INTERNETS
Many amateur traders have a misunderstanding about price gaps, and that is OK with us. If they subscribed to this newsletter, they might learn a thing or two. 😄
Last week, two stocks you may have heard of - Google and Apple - gapped higher after the release of their earnings reports. It prompted David Keller, CMT to publish an article on the StockCharts website (Gap Patterns in Focus: What GOOGL, AAPL, and the S&P 500 Are Telling Us) providing a discerning primer on how to look at those gaps.
He used the chart for Oracle (ORCL) as a demonstration, since it has multiple recent gaps higher but with different outcomes. The chart copied below shows the “gap and fail” instances.
His article is worth reading in its entirety, but the main idea is to watch in which direction the stock goes in the immediate few days after a gap higher.
NUMBERS ONLY
4.78% | The New York Stock Exchange Composite Index was up by 4.78% in April, less than half the gain for the S&P 500. |
46 | There were 46 new highs amongst the S&P 500 stocks on Friday, which is nice. But far from the 100-ish new highs per day back in early February. |
$87.11 | Not enough people are drinking their bleach! Shares of Clorox (CLX) are sitting at a multi-year low. |
SWINGEX INDEX
As of market close on: 1 May 2026
Swingy says: The newspaper says its an all-time high. The index says take some mangoes off the table.
Learn more about how the Swingex Index works here.
WATCHER
Stocks highlighted here each week are not recommendations to buy or sell. They are provided as ideas for swing traders to follow up on with their own research.
MCRI (Monarch Casino & Resort): This week we turn to the gambling industry for a chance to make a little money.
MCRI over the past year is a good example of how, in the stock market, ceilings can become floors and floors become ceilings. Last summer the stock gapped up over $100 after a good earnings report. The low that day seemed to function as a price floor into the fall (yeah, except for about a week in August).
Later, once MCRI cut decisively below that floor, the shares had a hard time making any progress much over $100. A couple of expeditions above that area in March and April were immediately hammered back down.
But now it is “game on” for MCRI after a more recent earnings report. The shares jumped far beyond the base and have not given back any of it. We would expect a further drift higher barring any big downturn in the general market.