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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Chart Patterns: After the Buy
Getting Started in Chart Patterns, Second Edition book.
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Fundamental Analysis and Position Trading: Evolution of a Trader book.
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Visual Guide to Chart Patterns book.
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Busted
Patterns
Candles Chart
Patterns
Event
Patterns
Small Patterns
Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 03/24/2017
20,597 -59.86 -0.3%
8,929 -7.37 -0.1%
706 3.20 0.5%
5,829 11.05 0.2%
2,344 -1.98 -0.1%
YTD
4.2%
-1.3%
7.0%
8.3%
4.7%
Tom's Targets    Overview: 03/14/2017
21,250 or 20,600 by 04/15/2017
9,500 or 8,700 by 04/15/2017
675 or 715 by 04/01/2017
5,950 or 5,650 by 04/15/2017
2,425 or 2,325 by 04/15/2017
Mutt Losers: None YTD
Mutt Winners: None YTD

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

April 2011 Headlines


Archives


Thursday 4/28/11. Do Fibonacci Extensions Work?

Picture of a flower from my garden.

Before I get to my latest research, let me complain. Five years ago, I took my dog to the vet to have her teeth cleaned. When I picked her up, I received a plastic bag of bloody teeth and a bill for $184. I thought he was going to CLEAN them, not YANK them.

Today, I tried another vet, recommended by my neighbor. They estimated charges of at least $500 (no teeth pulled) but it could run over $1,000, depending on how many teeth they pull and how many pliers they use to pull them ($120 per tooth for the hard ones).

Since they charge per tooth, I asked if they give a discount because she's already missing many of her teeth, teeth that won't need to be cleaned. The vet laughed.

While there, a man with his daughter came in with a hawk that ran into their car. Instead of helping them, the clerk told them to go to another vet in a neighboring city. The vet I visited with is in an animal hospital staffed with four vets... On their website, they say that it's not an "economic reason" but a safety issue that they won't issue prescriptions to online drug stores (such as Petmeds). I felt like asking "If money isn't an object, will you cut your price to match theirs?"

Addendum: I called another vet this morning, one I've used before. He charges two-thirds less than the other vet. So I canceled the first appointment and will go with the other vet.

$ $ $

If you want to buy a book online, then please do so though this website. Click on a picture of one of my books on the far left of this page. That will take you to Amazon.com and it passes a code to identify this website as the referrer. I collect a small fee for the referral but only if you buy something while there. Each time you make a purchase, you MUST go through this website or I won't collect the fee for that purchase. That fee does NOT increase the cost of your purchase. The referral fee applies to anything bought there, so don't feel obligated to buy one of my books.

Also, if you see an ad that interests you, then click on it. I collect a small fee for each click. If I can get enough of you to click on an ad or go through this site when buying through amazon.com, I'll be able to pay off my debt to the vet in my lifetime. Probably not, but I can dream. I'm still hoping to marry wealth. I already have a coat-of-arms. Is Kate's Middleton's sister available?

$ $ $

Picture of Dupont (DD) on the daily scale.

I show a picture of DuPont (DD) on the daily scale to illustrate what I found today.

I programmed my computer to find the ABCD move in every stock I follow and some that I used to follow, or almost 1,500 securities. I only included data from stocks priced over $5 per share from the start of the bear market in March 2000 to yesterday (4/27).

I wanted to measure the move from B to D versus the move from A to B. The BD move is an extension of the AB move. Many believe that it's a Fibonacci number, such as 38%, 50%, 62%, and so on (often seen in programs as 138%, 150%, etc).

Using 21,626 samples from a bull market, I did a frequency distribution of the BD gain as a percentage of the AB move in 5% increments up to 180%. If the Fibonacci extension believers are correct, then I should see spikes at 35% to 40%, around 50%, 60% to 65%, and so on.

There were no spikes. Only at 100% do we see a marginal increase in the number of hits from 264 at 95% to 277 at 100% and 223 at 105%. Based on this test, using a Fibonacci extension will not see price form a support or resistance area there. I also extended the frequency distribution up to 350%, but the percentage trend didn't change. There were no spike there, either.

In short, Fibonacci extensions work no better at predicting where price is going to turn than any other percentage.

-- Thomas Bulkowski

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Tuesday 4/26/11. Tutorial Tuesday: Surprising Candle Findings

I finished writing an article for Stocks & Commodities magazine today and thought I'd share with you some of my findings. I used the numbers from my book, Encyclopedia of Candlestick Charts, pictured on the right.

The article combines plentiful patterns with those that work best as reversals or continuations and in which price makes a big move 10 days after the candlestick pattern ends. What I discovered is that 5 of 8 candles were single lines! Yes, it's true. Tell your neighbors.

Here's a partial list of the best producers.

  • Rank 2: Dragonfly doji when it acts as a bearish reversal (a downward breakout in an upward price trend). Has a 50% reversal rate, but price drops 3.89% in 10 days.
  • Rank 1: Long black day when it acts as a bullish continuation (an upward breakout in an upward price trend). Has a 53% continuation rate, but price rises 5.11% in 10 days.
  • Rank 1: Long white day when it acts as a bearish continuation (a downward breakout in a falling price trend). Has a 58% continuation rate, but price drops 3.91% in 10 days.

For more details, you'll have to wait for the article to come out or buy my Encyclopedia book.

-- Thomas Bulkowski

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Monday 4/25/11. Market Monday: The Week Ahead

My Prediction

Picture of the Nasdaq on the daily scale.

I show the Nasdaq on the monthly scale this week to help determine what is going to happen in the index.

I drew a trendline connecting bottoms A and B. Then I drew a line parallel to AB at C (or as nearly as parallel as one can get using paintbrush).

Notice that point D is above the current price. That suggests more upside potential in the index.

Based on the daily chart (not shown), a breakaway gap sent prices shooting upward Thursday. Friday, price gapped up again. The Friday gap could be a continuation gap, but it sure looks like an exhaustion gap. I based that on the dragonfly doji that appears on Friday (at least on the chart I used).

It appears that the buying and selling forces are equal, so this week the index could stall and perhaps turn. I'm still hoping for a continuation of the uptrend, but it's more likely that price will go horizontal before it resumes moving up.

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A Brief Look Back

Picture of a flower from my garden.

The following are economic reports that moved the markets last week. The numbers refer to the close-to-close move in the Dow industrials.

Monday: Down 140.24 points.
Tuesday: Up 65.16 points.
Wednesday: Up 186.79 points.
Thursday: Up 52.45 points.
Friday: Holiday or other weird event!

For the Week...

The Dow industrials were up 164.16 points or 1.3%.
The Nasdaq composite was up 55.51 points or 2.0%.
The S&P 500 index was up 17.7 points or 1.3%.

Year to Date...

Dow Industrials
     0.0% down from the high of 12,506.06 on 04/21/2011.
     8.2% up from the low of 11,555.48 on 03/16/2011.
Nasdaq
     0.7% down from the high of 2,840.51 on 02/18/2011.
     8.3% up from the low of 2,603.50 on 03/16/2011.
S&P 500
     0.5% down from the high of 1,344.07 on 02/18/2011.
     7.1% up from the low of 1,249.05 on 03/16/2011.

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Economic Reports

The following information is derived from yahoo!finance and sometimes Bloomberg.com with times local to the east coast.

ReportTimeA-F
Rating
Description
New home sales10:00 MC+Shows sales of single-family homes.
Consumer confidence10:00 TB-Surveys 5,000 households for trends.
Durable goods orders8:30 WBMeasures orders, shipments of goods with lifespans >3 years.
Crude inventories10:30 W?My guess: Measures oil inventory.
FOMC Rate decision12:30 W?The Federal Reserves reports on interest rate changes.
Gross domestic product8:30 ThBMeasures economic activity; GDP deflator measures inflation.
Initial jobless claims8:30 ThC+Counts people filing for state unemployment benefits.
Personal income & consumption8:30 FC+Measures sources of income to predict future demand.
Personal consumption expenditures8:30 FC+Covers durables, non-durables, and services.
Chicago purchasing managers index9:45 FBMonitors regional manufacturing activity.
Michigan sentiment9:55 FB-Consumer sentiment: Measures strength of consumer spending.

Options Expiration

No options expire this week.

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Swing and Position Traders: Chart Pattern Indicator

As of 04/21/2011, the CPI had:

6 bearish patterns,
57 bullish patterns,
403 patterns waiting for breakout.
The CPI signal is 90.5%, which is bullish (>= 65%).

The chart pattern indicator is bullish with 3 of 3 half triangles showing (). Additional triangles are a measure of strength with solid triangles meaning a more reliable signal than half triangles.

Swing Traders: Pivot Points

The following is based on an SFO article in December 2004 by John Seekinger, titled, "Take a two-dimensional approach." He offers these tips.

IndexS2S1PivotR1R2
Dow Industrials (^DJI): Daily  12,428  12,467  12,487  12,526  12,545 
Weekly  11,956  12,231  12,369  12,643  12,781 
Monthly  11,534  12,020  12,263  12,749  12,992 
S&P 500 (^GSPC): Daily  1,331  1,334  1,336  1,339  1,341 
Weekly  1,280  1,309  1,323  1,352  1,366 
Monthly  1,254  1,296  1,318  1,359  1,381 
Nasdaq (^IXIC): Daily  2,804  2,812  2,816  2,824  2,829 
Weekly  2,668  2,744  2,782  2,858  2,897 
Monthly  2,579  2,700  2,760  2,881  2,941 
  • Seekinger doesn't look at the range of S2 to R2 as support and resistance levels. Rather, he considers them oversold (S) and overbought (R) areas.
  • S2 to R2 range of values across daily, weekly, and monthly periods: If two values are close together then they lend more significance to the area.
  • If the market trends on day 1, the odds rise tremendously that the market will be range bound between daily S1 and daily R1 the next day.
  • In a quiet market when traders are waiting for an important earnings announcement or economic report, look for daily R1 and S1 levels to hold and for the market to return to the daily pivot.
  • A move outside of daily R1 or S1 usually does not mean a breakout.
  • The odds suggest that the entire week's price action will remain between weekly R2 and S2.
  • Avoid going long when the market moves above weekly R2 (it's overbought) and avoid going short when price moves below weekly S2 (oversold).
  • Consider going short at weekly R1 or long at weekly S1 with a profit objective of the weekly pivot.
  • Consider going long at weekly S2 or short at weekly R2 with a profit objective of weekly S1 or R1, respectively.

Here are the formulas:

Pivot point: P = (H + L + C)/3
First resistance level: R1 = (2 * P) - L
First support level: S1 = (2 * P) - H)
Second resistance level: R2 = P + (R1 - S1)
Second support level: S2 = P - (R1 - S1)
H = high price , L=low price, C=closing price

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Consecutive Price Trends

Index Consecutive
Closes So Far 
% Comments 
 Dow industrials (^DJI) 1 week up 44.1%  Expect a random direction.
 5 months up 8.9%  Expect a reversal soon.
 S & P 500 (^GSPC) 1 week up 41.4%  Expect a random direction.
 5 months up 18.8%  Expect a reversal soon.
 Nasdaq composite (^IXIC) 1 week up 40.1%  Expect a random direction.
 1 month up 48.7%  Expect a random direction.

How long can an index close higher (or lower) each day? The adjacent table shows how often consecutive up or down closes occur in the indexes, based on the most recent trend of closes.

Low percentages suggest the market is overdue to turn (think of it as the likelihood that next week or next month will continue the trend, based on historical performance). Values of 50% mean random, so most percentages will be lower.

The analysis uses data going back 10 years for weekly percentages and 25 years for monthly percentages (or the start of data, whichever is more recent). Any unchanged closing price is interpreted as the end of the string of consecutive up or down closes.

Buy-and-Hold: 12-Month SMA

This indicator warns of an index moving into or out of a bear market. It's based on a 12-month simple moving average of monthly closing prices, so it only changes monthly. See 12-Month Moving Average for more details.
Dow Industrials: bullish.
Nasdaq Composite: bullish.
S&P 500 Index: bullish.
Dow Transports: bullish.
Dow Utilities: bullish.

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Earnings, Chart Patterns & Industries

Earnings season is either underway or should be starting soon. The sessions could be more volatile.

 Found Chart Pattern Name
18Triangle, symmetrical
16Head-and-shoulders bottom
13Broadening top
10Pipe top
8Rising wedge
7Triangle, ascending
6Broadening bottom
6Triangle, descending
5Rectangle top
4Broadening top, right-angled and descending

Large numbers of bullish or bearish chart patterns can signal short- to intermediate-term market trends (many bullish chart patterns can mean an uptrend will continue, for example). However, please realize that the short-term price trend could have changed since the pattern was discovered (this is especially true of pipe tops or bottoms, which are weekly patterns).

The 10 types of most frequently appearing chart patterns in the stocks, indexes, and long-only exchange traded funds I follow during the last month are shown in the adjacent table.

 

 

 

 

The following industries, of 52 that I follow, were the best (1) and worst (52) performing.

This WeekLast Week
1. Coal1. Coal
2. Petroleum (Integrated)2. Petroleum (Integrated)
3. Oilfield Svcs/Equipment3. Oilfield Svcs/Equipment
4. Petroleum (Producing)4. Petroleum (Producing)
5. Building Materials5. Building Materials
48. Household Products48. Household Products
49. Electric Utility (Central)49. Electric Utility (Central)
50. Electric Utility (East)50. Electric Utility (East)
51. Electric Utility (West)51. Electric Utility (West)
52. Alternate Energy52. Alternate Energy
53. Short ETFs53. Short ETFs

-- Thomas Bulkowski

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Tuesday 4/19/11. Tutorial Tuesday: How to Buy Intraday using Cycles

A chart of a stock for the last 10 days.

Shown is a stock chart using a 10 day look back on the 5 minute scale, courtesy of bigcharts.com. I drew vertical blue lines to separate the days more clearly for this presentation.

Pretend you are interested in buying the stock at a good price. Thus, you will be looking for cycle lows: common times when price makes a low. Knowing when price is about to make a low gives you an edge. You can pull the trigger (buy) with more confidence. I show red circles highlighting the locations when the stock made a low near the same time.

The first five circles bottom about 1.5 to 2 hours into the session (and you should be able to pick out the times on your intraday chart better than this one by zooming into the individual day) and the two circles on the right bottom later. For end-of day traders like me, use the cycle information to help locate times when you should focus on the stock instead of sitting and watching it all day. Cycles can help you determine when it will be a good time to buy (look for cycles among the valleys) or to sell (cycles among the peaks). I have used this technique several times for entries and it works for both end-of-day traders and can also help day traders plan when price is going the reverse, based on prior cycles.

Since each stock will show different cycle patterns, you will have to do your own analysis. Do not depend on every stock making a low 1.5 to 2 hours into the trading day. This is just an example. The low you pick may not be the lowest low of the day but one where you can get in at a good price. When you look at your intraday chart as the expected time of reversal nears, if the stock is trending higher then forget it. The cycle is broken and it will not work this day. But, if the stock is trending downward, then it could reverse near the expected time. Look for underlying support or the stock to form a bottom, perhaps move horizontally for several price bars. The 10-day chart will tell you how typical reversals look, either V-shaped or more flat, wider looking (an Adam bottom versus an Eve bottom, if you know what those are). If price looks to be turning near the cycle low time, then consider buying.

-- Thomas Bulkowski

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Monday 4/18/11. Market Monday: The Week Ahead

My Prediction

Picture of the Dow industrials on the daily scale.

Gar reported an inverted and ascending scallop in the S&P 500, but I also show it in the Dow industrials (daily scale), pictured on the right.

The chart pattern begins at point A, climbs to B and then retraces to C. The average retrace is 50%, so the Dow hasn't reached it yet. Nevertheless, I think the Dow has stopped declining.

But, and that's a big butt, earnings season has begun and that means a more volatile session with strong trends. The Dow can rise or drop by hundreds of points and then reverse it the next day.

Last week, I predicted the indices would drop, and they did. Now, it's a complete flip with the indices showing green. Hopefully, earnings will be good enough to push price higher.

With the way the last month has been, I could use some good news. For example, I spent the weekend rebuilding my fence that blew over in a wind storm. You read about my new car purchase to replace my old car, but my treadmill broke, I had to file an amended tax return when I found a mistake 30 seconds after submitting it, and someone broke a padlock guarding a fence gate for my back yard, despite security cameras in place and a licensed attack dog that will lick them to death. I've been stressed for a month now despite doing well in the markets.

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A Brief Look Back

Picture of a flower from my garden.

The following are economic reports that moved the markets last week. The numbers refer to the close-to-close move in the Dow industrials.

Monday: Up 1.06 points.
Tuesday: Down 117.53 points.
Wednesday: Up 7.41 points.
Thursday: Up 14.16 points.
Friday: Up 56.68 points.

For the Week...

The Dow industrials were down 38.22 points or 0.3%.
The Nasdaq composite was down 15.77 points or 0.6%.
The S&P 500 index was down 8.49 points or 0.6%.

Year to Date...

Dow Industrials
     0.9% down from the high of 12,450.93 on 04/06/2011.
     6.8% up from the low of 11,555.48 on 03/16/2011.
Nasdaq
     2.7% down from the high of 2,840.51 on 02/18/2011.
     6.2% up from the low of 2,603.50 on 03/16/2011.
S&P 500
     1.8% down from the high of 1,344.07 on 02/18/2011.
     5.7% up from the low of 1,249.05 on 03/16/2011.

Top

Economic Reports

The following information is derived from yahoo!finance and sometimes Bloomberg.com with times local to the east coast.

ReportTimeA-F
Rating
Description
Housing starts8:30 TB-Number of homes beginning construction.
Building permits8:30 TB-Measures building permits for new construction.
Existing home sales10:00 WCCounts sales of used homes.
Crude inventories10:30 W?My guess: Measures oil inventory.
Initial jobless claims8:30 ThC+Counts people filing for state unemployment benefits.
Leading indicators10:00 ThD-Summary of already known reports.

Options Expiration

VIX expires on Wednesday.

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Swing and Position Traders: Chart Pattern Indicator

On 04/15/2011, the chart pattern indicator (CPI) had:

7 bearish patterns,
19 bullish patterns,
338 patterns waiting for breakout.
The CPI signal is 73.1%, which is bullish (>= 65%).

The chart pattern indicator is bullish with 1 of 3 half triangles showing (). Additional triangles are a measure of strength with solid triangles meaning a more reliable signal than half triangles.

Swing Traders: Pivot Points

The following is based on an SFO article in December 2004 by John Seekinger, titled, "Take a two-dimensional approach." He offers these tips.

IndexS2S1PivotR1R2
Dow Industrials (^DJI): Daily  12,231  12,287  12,328  12,383  12,425 
Weekly  12,036  12,189  12,317  12,469  12,597 
Monthly  11,221  11,781  12,116  12,677  13,012 
S&P 500 (^GSPC): Daily  1,310  1,315  1,319  1,324  1,328 
Weekly  1,287  1,303  1,319  1,335  1,350 
Monthly  1,212  1,266  1,303  1,356  1,393 
Nasdaq (^IXIC): Daily  2,734  2,749  2,759  2,775  2,785 
Weekly  2,704  2,735  2,764  2,794  2,823 
Monthly  2,516  2,640  2,728  2,852  2,940 
  • Seekinger doesn't look at the range of S2 to R2 as support and resistance levels. Rather, he considers them oversold (S) and overbought (R) areas.
  • S2 to R2 range of values across daily, weekly, and monthly periods: If two values are close together then they lend more significance to the area.
  • If the market trends on day 1, the odds rise tremendously that the market will be range bound between daily S1 and daily R1 the next day.
  • In a quiet market when traders are waiting for an important earnings announcement or economic report, look for daily R1 and S1 levels to hold and for the market to return to the daily pivot.
  • A move outside of daily R1 or S1 usually does not mean a breakout.
  • The odds suggest that the entire week's price action will remain between weekly R2 and S2.
  • Avoid going long when the market moves above weekly R2 (it's overbought) and avoid going short when price moves below weekly S2 (oversold).
  • Consider going short at weekly R1 or long at weekly S1 with a profit objective of the weekly pivot.
  • Consider going long at weekly S2 or short at weekly R2 with a profit objective of weekly S1 or R1, respectively.

Here are the formulas:

Pivot point: P = (H + L + C)/3
First resistance level: R1 = (2 * P) - L
First support level: S1 = (2 * P) - H)
Second resistance level: R2 = P + (R1 - S1)
Second support level: S2 = P - (R1 - S1)
H = high price , L=low price, C=closing price

Top

Consecutive Price Trends

Index Consecutive
Closes So Far 
% Comments 
 Dow industrials (^DJI) 1 week down 30.2%  The trend may continue.
 5 months up 8.9%  Expect a reversal soon.
 S & P 500 (^GSPC) 2 weeks down 19.6%  Expect a reversal soon.
 1 month down 20.1%  Expect a reversal soon.
 Nasdaq composite (^IXIC) 2 weeks down 21.2%  Expect a reversal soon.
 2 months down 15.5%  Expect a reversal soon.

How long can an index close higher (or lower) each day? The adjacent table shows how often consecutive up or down closes occur in the indexes, based on the most recent trend of closes.

Low percentages suggest the market is overdue to turn (think of it as the likelihood that next week or next month will continue the trend, based on historical performance). Values of 50% mean random, so most percentages will be lower.

The analysis uses data going back 10 years for weekly percentages and 25 years for monthly percentages (or the start of data, whichever is more recent). Any unchanged closing price is interpreted as the end of the string of consecutive up or down closes.

Buy-and-Hold: 12-Month SMA

This indicator warns of an index moving into or out of a bear market. It's based on a 12-month simple moving average of monthly closing prices, so it only changes monthly. See 12-Month Moving Average for more details.
Dow Industrials: bullish.
Nasdaq Composite: bullish.
S&P 500 Index: bullish.
Dow Transports: bullish.
Dow Utilities: bullish.

Top

Earnings, Chart Patterns & Industries

Earnings season is either underway or should be starting soon. The sessions could be more volatile.

 Found Chart Pattern Name
15Head-and-shoulders bottom
15Triangle, symmetrical
13Pipe bottom
13Broadening top
8Broadening bottom
8Rising wedge
7Pipe top
5Triangle, ascending
5Triangle, descending
5Broadening wedge, descending

Large numbers of bullish or bearish chart patterns can signal short- to intermediate-term market trends (many bullish chart patterns can mean an uptrend will continue, for example). However, please realize that the short-term price trend could have changed since the pattern was discovered (this is especially true of pipe tops or bottoms, which are weekly patterns).

The 10 types of most frequently appearing chart patterns in the stocks, indexes, and long-only exchange traded funds I follow during the last month are shown in the adjacent table.

 

 

 

 

The following industries, of 52 that I follow, were the best (1) and worst (52) performing.

This WeekLast Week
1. Coal1. Coal
2. Petroleum (Integrated)2. Petroleum (Integrated)
3. Oilfield Svcs/Equipment3. Oilfield Svcs/Equipment
4. Petroleum (Producing)4. Petroleum (Producing)
5. Building Materials5. Building Materials
48. Household Products48. Electric Utility (East)
49. Electric Utility (Central)49. Household Products
50. Electric Utility (East)50. Electric Utility (West)
51. Electric Utility (West)51. Homebuilding
52. Alternate Energy52. Alternate Energy
53. Short ETFs53. Short ETFs

-- Thomas Bulkowski

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Thursday 4/14/11. How Accurate Are Stock Upgrades and Downgrades?

Picture of a flower from my garden.

After waiting for 4 weeks, I finally received my plasma TV that came free with my purchase of a new car. I bugged the dealership earlier this week about the delay and they sent me an email this morning saying it was ready to be picked up. The 42" Samsung morphed into a 43" thing. It's not a very wide TV, but it sure is tall! Of course, I could have mounted it wrong.

I shuffled an old 27" TV into my master bedroom and moved the small one that was there into my office. However, when I used the treadmill in my bedroom this evening, I couldn't hear the TV. So, I'll have to swap the two TVs. That's not exactly easy since the 27" CRT TV weighs more than I do. Perhaps I can strap it onto the back of my dog. Anyway, trying to find a spot in my office will be a challenge.

$ $ $

I completed research on broker rating upgrades and downgrades of stocks. I could show you the numbers, but making sense of them takes some work. I looked at hundreds of rating changes by brokers then I looked at the historical price range and the range a year later. For the historical range, most (47%) upgrades occurred within a third of the yearly high and coincidentally, that's also where downgrades (40% of them) placed (all numbers are for bull markets).

A year later, the stock had drifted higher such that 50% of the prices at the time of the upgrade were now within a third of the yearly low. That's what's supposed to happen. Unfortunately, 48% of downgrades were also within a third of the yearly low. And that means price climbed instead of dropping as brokers predicted (or under performing the market).

The conclusions I draw from this are two. First, brokers are good at picking stocks that do well in a bull market. Second, ignore their downgrades in a bull market.

-- Thomas Bulkowski

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Tuesday 4/12/11. Tutorial Tuesday: Why Can't You Make Money?

Picture of a flower from my garden.

Over the past six months or so, I have received several emails that say a curious thing: "I've been trading for two or three years now, and I'm still losing money."

Whenever I read something like that, my first question is why aren't you making money? Here's the list of performance numbers for the Dow industrials, close to close, as of Friday.

  • 2009: up 18.8%
  • 2010: up 11.0%
  • 2011: up 6.9% (so far)
  • Total: 36.7%

The Nasdaq did even better...

  • 2009: up 43.9%
  • 2010: up 16.9%
  • 2011: up 4.8% (so far)
  • Total: 65.6%

If you did nothing but buy and hold you would have made 36% in the Dow and 65% in the Nasdaq. If you bought after the end of the bear market, you could have made substantially more. That's what I did.

Is that all hindsight? Of course, but if buy and hold can make money, then doesn't that give you a clue about making money?

The answer is to stop trading.

Let me put it another way. If you're a day trader, perhaps you'd do much better if you hold until the day's close. Or how about holding overnight or even for a few days, maybe a week or two? Yes, the risk increases but so does the opportunity for profit. If you can't afford to hold overnight, then you shouldn't be day trading because you're undercapitalized. If you can't bear to not trade, then you're trading for the adrenaline rush and making money is secondary. Lots of people trade for the high they feel, so you're not alone. Emotional trading is not a way to profit.

Try this experiment. Move your trades into excel and determine the hold time for each trade, preferably if you've held positions for days or longer. Compute the median hold time (use the "median" function). Then compute the gain for trades held longer than the median and those held shorter than the median. See if a longer hold time makes more money. If so, then you know what needs to be done: hold onto each trade longer.

-- Thomas Bulkowski

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Monday 4/11/11. Market Monday: The Week Ahead

My Prediction

Picture of the Dow transports on the daily scale.

I flipped my targets for the indices to bearish based on lots of stocks turning lower. I think this will be reflected in the major indices this week.

The Dow transports already show the way. I show it on the daily scale.

Price has formed a large broadening top chart pattern. That pattern contains price that bounces between two diverging trendlines. Price has touched the top trendline and is now dropping.

How far will it go down? My guess is the 62% retrace line. I calculated the height from A to B then took 62% of it and I show that by the red line. I also show the 50% retrace line. Price has already dropped below the 38% line.

Although the other indices do not show broadening patterns, they all look as if they are ready to drop. I think the transports are one of the more severe declines of the bunch, but check the links near the top of this page (under Tom's Targets) for individual targets.

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A Brief Look Back

Picture of a flower from my garden.

The following are economic reports that moved the markets last week. The numbers refer to the close-to-close move in the Dow industrials.

Monday: Up 23.31 points.
Tuesday: Down 6.13 points.
Wednesday: Up 32.85 points.
Thursday: Down 17.26 points.
Friday: Down 29.44 points.

For the Week...

The Dow industrials were up 3.33 points or 0.0%.
The Nasdaq composite was down 9.18 points or 0.3%.
The S&P 500 index was down 4.24 points or 0.3%.

Year to Date...

Dow Industrials
     0.6% down from the high of 12,450.93 on 04/06/2011.
     7.1% up from the low of 11,555.48 on 03/16/2011.
Nasdaq
     2.1% down from the high of 2,840.51 on 02/18/2011.
     6.8% up from the low of 2,603.50 on 03/16/2011.
S&P 500
     1.2% down from the high of 1,344.07 on 02/18/2011.
     6.3% up from the low of 1,249.05 on 03/16/2011.

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Economic Reports

The following information is derived from yahoo!finance and sometimes Bloomberg.com with times local to the east coast.

ReportTimeA-F
Rating
Description
Trade balance8:30 TC+Signals balance of exports & imports.
International trade8:30 TC+Import/export prices, trade balance. US economy vs others.
Treasury budget2:00 TDTracks budget deficit. Important in April (tax filing).
Retail sales8:30 WA-Reports total retail sales (not services). Are people spending?
Business inventories10:00 WC-Reports manufacturing, wholesale, retail inventories.
Crude inventories10:30 W?My guess: Measures oil inventory.
FEDs Beige book2:00 W?Reports on economic conditions.
Initial jobless claims8:30 ThC+Counts people filing for state unemployment benefits.
Producer price index8:30 ThB-Measures wholesale goods cost. An indication of future inflation.
Consumer price index8:30 FB+Inflation report. Measures cost of goods and services.
Industrial production9:15 FB-Production of utilities, mines, and manufacturers.
Capacity utilization9:15 FB-Gauges economic activity, hints of inflation.

Options Expiration

The following is courtesy of the Options Industry Council.

OptionDate
A.M. settled index options cease trading.Thursday
Expiring equity, P.M. settled index options and treasury/interest rate options classes cease trading. Expiring cash-settled currency options cease trading at 12:00 P.M. EST.Friday
Equity, index, cash-settled currency and treasury/interest rate options expireSaturday

Many options expire this week, so traders will be looking to close out their positions ahead of that, and that suggests increased volatility (large daily price swings).

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Swing and Position Traders: Chart Pattern Indicator

On 04/08/2011, the chart pattern indicator (CPI) had:

22 bearish patterns,
8 bullish patterns,
252 patterns waiting for breakout.
The CPI signal is 26.7%, which is bearish (<= 35%).

The chart pattern indicator is bearish with 1 of 3 half triangles showing (). Additional triangles are a measure of strength with solid triangles meaning a more reliable signal than half triangles.

Swing Traders: Pivot Points

The following is based on an SFO article in December 2004 by John Seekinger, titled, "Take a two-dimensional approach." He offers these tips.

IndexS2S1PivotR1R2
Dow Industrials (^DJI): Daily  12,254  12,317  12,384  12,447  12,513 
Weekly  12,254  12,317  12,384  12,447  12,514 
Monthly  11,233  11,807  12,129  12,702  13,024 
S&P 500 (^GSPC): Daily  1,314  1,321  1,330  1,337  1,347 
Weekly  1,314  1,321  1,330  1,337  1,347 
Monthly  1,215  1,272  1,306  1,362  1,396 
Nasdaq (^IXIC): Daily  2,751  2,766  2,787  2,802  2,823 
Weekly  2,746  2,763  2,789  2,807  2,833 
Monthly  2,521  2,651  2,733  2,863  2,945 
  • Seekinger doesn't look at the range of S2 to R2 as support and resistance levels. Rather, he considers them oversold (S) and overbought (R) areas.
  • S2 to R2 range of values across daily, weekly, and monthly periods: If two values are close together then they lend more significance to the area.
  • If the market trends on day 1, the odds rise tremendously that the market will be range bound between daily S1 and daily R1 the next day.
  • In a quiet market when traders are waiting for an important earnings announcement or economic report, look for daily R1 and S1 levels to hold and for the market to return to the daily pivot.
  • A move outside of daily R1 or S1 usually does not mean a breakout.
  • The odds suggest that the entire week's price action will remain between weekly R2 and S2.
  • Avoid going long when the market moves above weekly R2 (it's overbought) and avoid going short when price moves below weekly S2 (oversold).
  • Consider going short at weekly R1 or long at weekly S1 with a profit objective of the weekly pivot.
  • Consider going long at weekly S2 or short at weekly R2 with a profit objective of weekly S1 or R1, respectively.

Here are the formulas:

Pivot point: P = (H + L + C)/3
First resistance level: R1 = (2 * P) - L
First support level: S1 = (2 * P) - H)
Second resistance level: R2 = P + (R1 - S1)
Second support level: S2 = P - (R1 - S1)
H = high price , L=low price, C=closing price

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Consecutive Price Trends

Index Consecutive
Closes So Far 
% Comments 
 Dow industrials (^DJI) 3 weeks up 21.8%  Expect a reversal soon.
 5 months up 8.9%  Expect a reversal soon.
 S & P 500 (^GSPC) 1 week down 30.8%  The trend may continue.
 5 months up 18.8%  Expect a reversal soon.
 Nasdaq composite (^IXIC) 1 week down 33.6%  The trend may continue.
 2 months down 15.5%  Expect a reversal soon.

How long can an index close higher (or lower) each day? The adjacent table shows how often consecutive up or down closes occur in the indexes, based on the most recent trend of closes.

Low percentages suggest the market is overdue to turn (think of it as the likelihood that next week or next month will continue the trend, based on historical performance). Values of 50% mean random, so most percentages will be lower.

The analysis uses data going back 10 years for weekly percentages and 25 years for monthly percentages (or the start of data, whichever is more recent). Any unchanged closing price is interpreted as the end of the string of consecutive up or down closes.

Buy-and-Hold: 12-Month SMA

This indicator warns of an index moving into or out of a bear market. It's based on a 12-month simple moving average of monthly closing prices, so it only changes monthly. See 12-Month Moving Average for more details.
Dow Industrials: bullish.
Nasdaq Composite: bullish.
S&P 500 Index: bullish.
Dow Transports: bullish.
Dow Utilities: bullish.

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Earnings, Chart Patterns & Industries

Earnings season will be starting in about 3 days.

 Found Chart Pattern Name
51Pipe bottom
17Triangle, symmetrical
15Broadening top
12Head-and-shoulders bottom
9Broadening bottom
7Double Bottom, Adam and Adam
7Triangle, descending
7Triangle, ascending
6Broadening wedge, descending
6Rising wedge

Large numbers of bullish or bearish chart patterns can signal short- to intermediate-term market trends (many bullish chart patterns can mean an uptrend will continue, for example). However, please realize that the short-term price trend could have changed since the pattern was discovered (this is especially true of pipe tops or bottoms, which are weekly patterns).

The 10 types of most frequently appearing chart patterns in the stocks, indexes, and long-only exchange traded funds I follow during the last month are shown in the adjacent table.

 

 

 

 

The following industries, of 52 that I follow, were the best (1) and worst (52) performing.

This WeekLast Week
1. Coal1. Coal
2. Petroleum (Integrated)2. Petroleum (Integrated)
3. Oilfield Svcs/Equipment3. Oilfield Svcs/Equipment
4. Petroleum (Producing)4. Petroleum (Producing)
5. Building Materials5. Building Materials
48. Household Products48. Electric Utility (East)
49. Electric Utility (Central)49. Household Products
50. Electric Utility (East)50. Electric Utility (West)
51. Electric Utility (West)51. Homebuilding
52. Alternate Energy52. Alternate Energy
53. Short ETFs53. Short ETFs

-- Thomas Bulkowski

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Thursday 4/7/11. The Range Trade

Picture of the CH Energy (CHG) on the weekly scale.

I like owning electric utility stocks because they pay you to hold them. That was true in the past and it's certainly true now, but in the future, with greenhouse emission regulations coming, then making a profit from utility stocks I think will be harder to come by.

I've owned CH Energy (CHG), pictured (weekly scale), for years. I range trade it. That means I buy low and sell high. The low price is often in the low 40s when I buy and the target exit is above 50 (I try for 52). You can see the range if you flip to a wider time scale.

This is an example of such a trade.

When price reached support at B, forming a potential double bottom low (A), I bought the stock on June 3 at 39.72. It wasn't the bottom, which I missed by three days. That's not bad.

The double bottom chart pattern confirmed when price closed above the peak between the two bottoms, D. That's the traditional buy point.

I held onto the stock, hoping to sell it at 52 and collect a 5.4% dividend along the way. That's the dividend rate based on my purchase price.

When price neared 50, I placed a limit order to sell at 52. That triggered on April 5 (C) for a net gain of 35% including three dividend payments (otherwise it would have been 30%).

-- Thomas Bulkowski

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Tuesday 4/5/11. Market Monday on Tuesday: The Week Ahead

My Prediction

Picture of the Dow industrials on the daily scale.

The figure shows a chart of the Dow industrials on the daily scale.

To determine the direction of the index this week, I looked at many, but not all, of the component parts -- the stocks that make up the index.

Based on that review, I expect the index to drop this week. The decline may not be much, but I saw many stocks reaching an old high and reversing. That's a sign of a 2B top.

The 2B is a pattern that I consider reliable but it may not lead to a significant decline. Thus, while I expect the index to drop, I don't see a catalyst for a steep or lasting decline.

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A Brief Look Back

Picture of a flower from my garden.

The following are economic reports that moved the markets last week. The numbers refer to the close-to-close move in the Dow industrials.

Monday: Down 22.71 points.
Tuesday: Up 81.13 points.
Wednesday: Up 71.6 points.
Thursday: Down 30.88 points.
Friday: Up 56.99 points.

For the Week...

The Dow industrials were up 156.13 points or 1.3%.
The Nasdaq composite was up 46.54 points or 1.7%.
The S&P 500 index was up 18.61 points or 1.4%.

Year to Date...

Dow Industrials
     0.3% down from the high of 12,419.71 on 04/01/2011.
     7.1% up from the low of 11,555.48 on 03/16/2011.
Nasdaq
     1.8% down from the high of 2,840.51 on 02/18/2011.
     7.1% up from the low of 2,603.50 on 03/16/2011.
S&P 500
     0.9% down from the high of 1,344.07 on 02/18/2011.
     6.7% up from the low of 1,249.05 on 03/16/2011.

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Economic Reports

The following information is derived from yahoo!finance and sometimes Bloomberg.com with times local to the east coast.

ReportTimeA-F
Rating
Description
FOMC Minutes2:00 T?Minutes of the prior Federal Reserve meeting.
Crude inventories10:30 W?My guess: Measures oil inventory.
Initial jobless claims8:30 ThC+Counts people filing for state unemployment benefits.
Consumer credit3:00 ThD-Measures auto, credit card and other debt.
Wholesale inventories10:00 FD-Wholesale sales and inventory statistics.

Options Expiration

No options expire this week.

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Swing and Position Traders: Chart Pattern Indicator

As of 04/01/2011, the CPI had:

3 bearish patterns,
86 bullish patterns,
296 patterns waiting for breakout.
The CPI signal is 96.6%, which is bullish (>= 65%).

The chart pattern indicator is bullish with 1 of 3 full triangles showing (). Additional triangles are a measure of strength with solid triangles meaning a more reliable signal than half triangles.

Swing Traders: Pivot Points

The following is based on an SFO article in December 2004 by John Seekinger, titled, "Take a two-dimensional approach." He offers these tips.

IndexS2S1PivotR1R2
Dow Industrials (^DJI): Daily  12,274  12,325  12,372  12,424  12,471 
Weekly  12,077  12,227  12,323  12,473  12,570 
Monthly  11,253  11,815  12,117  12,679  12,982 
S&P 500 (^GSPC): Daily  1,324  1,328  1,333  1,337  1,342 
Weekly  1,293  1,312  1,325  1,345  1,358 
Monthly  1,218  1,275  1,306  1,364  1,395 
Nasdaq (^IXIC): Daily  2,768  2,779  2,791  2,802  2,814 
Weekly  2,688  2,739  2,771  2,821  2,853 
Monthly  2,533  2,661  2,732  2,860  2,931 
  • Seekinger doesn't look at the range of S2 to R2 as support and resistance levels. Rather, he considers them oversold (S) and overbought (R) areas.
  • S2 to R2 range of values across daily, weekly, and monthly periods: If two values are close together then they lend more significance to the area.
  • If the market trends on day 1, the odds rise tremendously that the market will be range bound between daily S1 and daily R1 the next day.
  • In a quiet market when traders are waiting for an important earnings announcement or economic report, look for daily R1 and S1 levels to hold and for the market to return to the daily pivot.
  • A move outside of daily R1 or S1 usually does not mean a breakout.
  • The odds suggest that the entire week's price action will remain between weekly R2 and S2.
  • Avoid going long when the market moves above weekly R2 (it's overbought) and avoid going short when price moves below weekly S2 (oversold).
  • Consider going short at weekly R1 or long at weekly S1 with a profit objective of the weekly pivot.
  • Consider going long at weekly S2 or short at weekly R2 with a profit objective of weekly S1 or R1, respectively.

Here are the formulas:

Pivot point: P = (H + L + C)/3
First resistance level: R1 = (2 * P) - L
First support level: S1 = (2 * P) - H)
Second resistance level: R2 = P + (R1 - S1)
Second support level: S2 = P - (R1 - S1)
H = high price , L=low price, C=closing price

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Consecutive Price Trends

Index Consecutive
Closes So Far 
% Comments 
 Dow industrials (^DJI) 2 weeks up 31.4%  The trend may continue.
 5 months up 8.9%  Expect a reversal soon.
 S & P 500 (^GSPC) 2 weeks up 30.1%  The trend may continue.
 5 months up 18.8%  Expect a reversal soon.
 Nasdaq composite (^IXIC) 2 weeks up 26.2%  The trend may continue.
 1 month up 48.7%  Expect a random direction.

How long can an index close higher (or lower) each day? The adjacent table shows how often consecutive up or down closes occur in the indexes, based on the most recent trend of closes.

Low percentages suggest the market is overdue to turn (think of it as the likelihood that next week or next month will continue the trend, based on historical performance). Values of 50% mean random, so most percentages will be lower.

The analysis uses data going back 10 years for weekly percentages and 25 years for monthly percentages (or the start of data, whichever is more recent). Any unchanged closing price is interpreted as the end of the string of consecutive up or down closes.

Buy-and-Hold: 12-Month SMA

This indicator warns of an index moving into or out of a bear market. It's based on a 12-month simple moving average of monthly closing prices, so it only changes monthly. See 12-Month Moving Average for more details.
Dow Industrials: bullish.
Nasdaq Composite: bullish.
S&P 500 Index: bullish.
Dow Transports: bullish.
Dow Utilities: bullish.

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Earnings, Chart Patterns & Industries

Earnings season will be starting in about 10 days.

 Found Chart Pattern Name
44Pipe bottom
20Triangle, symmetrical
10Head-and-shoulders top
9Broadening top
8Rising wedge
8Broadening bottom
8Triangle, ascending
7Head-and-shoulders bottom
7Rectangle top
7Triangle, descending

Large numbers of bullish or bearish chart patterns can signal short- to intermediate-term market trends (many bullish chart patterns can mean an uptrend will continue, for example). However, please realize that the short-term price trend could have changed since the pattern was discovered (this is especially true of pipe tops or bottoms, which are weekly patterns).

The 10 types of most frequently appearing chart patterns in the stocks, indexes, and long-only exchange traded funds I follow during the last month are shown in the adjacent table.

 

 

 

 

The following industries, of 52 that I follow, were the best (1) and worst (52) performing.

This WeekLast Week
1. Coal1. Coal
2. Petroleum (Integrated)2. Petroleum (Integrated)
3. Oilfield Svcs/Equipment3. Oilfield Svcs/Equipment
4. Petroleum (Producing)4. Building Materials
5. Building Materials5. Petroleum (Producing)
48. Electric Utility (East)48. Household Products
49. Household Products49. Electric Utility (East)
50. Electric Utility (West)50. Electric Utility (West)
51. Homebuilding51. Drug
52. Alternate Energy52. Alternate Energy
53. Short ETFs53. Short ETFs

-- Thomas Bulkowski

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Monday 4/4/11. Filing Tax Return

I'll make the usual Monday post tomorrow. I spent the weekend doing my taxes. I checked them over, filed them electronically and just as it went through, noticed that I had a duplicate entry. That means an amended return. Sigh.

-- Thomas Bulkowski

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