What is an Inside Day?
An inside day occurs when the current daily price range for security, market, sector, or an index falls within the price range of the previous day. Practitioners of Japanese candlestick charting will recognize this pattern as that of the Harami pattern. The technical pattern can alert traders and investors to an impending directional trend change in the security in question.
Signs of Market's Indecision
The inside day pattern typically occurs when there is indecision or confusion in the marketplace. This pattern often signals a market environment where the bulls and the bears are deadlocked. The bulls and the bears are not strong enough to send the price beyond the prior day's range. Despite the end of another favorable earnings season, the recent market's response to rising inflation is confusing investors. Also, the reopening of the economy as the Covid-19 pandemic subsides is eliciting concerns of the FED curtailing its easy monetary policies.
Inside days is often a reflection of a contraction in volatility and are often a continuation pattern. Following an inside day, the price will often continue moving in the same direction as before the technical formation. When an inside day develops toward the end of a prolonged downtrend and the security trades near significant technical support, it can signal an impending bullish trend change. Conversely, an inside day that develops near the end of a prolonged uptrend can also signal the bull rally is maturing and warns of either a deeper correction or the start of a bear decline.
Understanding Inside Days
There are no hard and fast rules as to whether a trend reversal will occur. However, the traditional rule is a convincing move above the top of the prior day's high can signal buyers returning and the next sustainable bull rally. On the other hand, when the security in question falls decisively below the prior day's low, this can also trigger the next downturn. Whether you are a trader or investor, the days following the inside patterns can help decide the next directional trend.
Enclosed are the daily charts of major U.S. indexes, including the S&P 500 Index (SPX), Dow Jones Industrial Average (INDU), NASDAQ Composite Index (COMPQ), and NASDAQ 100 Index (NDX). Also summarized below are the key technical levels to monitor.
S&P 500 Index (SPX – 4,112.50)
5/12/21: High = 4,134.73, Low = 4,056.88, and Close = 4,063.04
5/13/21: High = 4,131.58, Low = 4,074.99 and Close = 4,112.50
Dow Jones Industrial Average (INDU – 34,021.45)
5/12/21: High = 34,207.87, Low = 33,555.22, and Close = 33,587.66
5/13/21: High = 34,181.77, Low = 33,623.49 and Close = 34,021.45
NASDAQ Composite Index (COMPQ – 13,124.99)
5/12/20 High = 13,288.61, Low = 13,002.53, and Close = 13,031.68
5/13/20 High = 13,247.87, Low = 13,077.24, and Close = 13,124.99
NASDAQ 100 Index (NDX – 13,109.15)
5/12/20 High = 13,236.89, Low = 12,967.18, and Close = 13,001.63
5/13/20 High = 13,226.64, Low = 13,006.77, and Close = 13,109.15