Good news bad news, which do you want first?

Let's start with the bad news...

Weekly upside gaps got filled to suggest upside exhaustion on SPX, NDX, and DJI

We highlighted the importance of last week's upside gaps across the S&P 500 (SPX), NASDAQ 100 (NDX), and Dow Jones Industrial Average (DJI) in this blog on November 3rd and in our Charted Market Insights from November 4th. Long story short, these weekly gaps got filled to suggest upside exhaustion. In addition, these indices confirmed bearish weekly candles.

SPX: Weekly close below 6800 fills the gap and confirms a bearish weekly doji

The S&P 500 (SPX) formed a potential bearish weekly doji candlestick pattern for the week ending October 31st. This weekly candlestick also occurred on a weekly upside gap. The SPX dropped 1.6% this week, closing at 6728.80, to fill the upside gap at 6814-6807. This provides bearish confirmation of the doji as well as suggests that the prior week's gap was an upside exhaustion gap, which is also a bearish signal.

Chart 1: S&P 500 weekly candlestick chart

NDX and DJI: Bearish weekly candle patterns and upside exhaustion gaps

Both the NDX and DJI dropped last week and filled their weekly upside gaps from the prior week ending October 31. This confirmed the prior week's bearish shooting star patterns and established weekly upside exhaustion gaps, which is a negative sign for both indices. In addition, both indices also formed bearish weekly engulfing patterns that could provide an overhang.

Note: Technology (XLK) and Semiconductors (SMH) have the same challenging patterns as NDX and DJI on their weekly charts: bearish shooting stars, upside exhaustion gaps, and bearish engulfing patterns.

Chart 2: NASDAQ 100: Weekly candlestick chart

Chart 3: Dow Jones Industrial Average: Weekly candlestick chart

Now on to the good news...

Bullish daily hammer patterns on Friday (11/7) defend 40- and 50-DMAs

Thursday's big drop across the SPX, NDX, and DJI extended into early Friday prior to a rally that continued into the close of trading on Friday. This intra-day spike lower followed by a rally and a close near the high of the session created daily hammers across the SPX, NDX, and DJI. The spike lows defended the rising 50-DMAs and the close reclaimed the rising 40-DMAs on the SPX and NDX. The DJI defended the 40-DMA on the spike low. A hammer is considered a bullish reversal pattern, but upside follow-through is needed to confirm it.

However, if there is upside follow-through from these bullish hammers, will it be enough to overcome the challenging technical signals on the weekly charts? Early next week could hold the key.

Chart 6: S&P 500: Daily candlestick chart

Chart 7: NASDAQ 100: Daily candlestick chart

Chart 8: Dow Jones Industrial Average: Daily candlestick chart