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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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Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 07/20/2017
21,612 -28.97 -0.1%
9,483 -92.64 -1.0%
720 5.10 0.7%
6,390 4.96 0.1%
2,473 -0.38 0.0%
YTD
9.4%
4.9%
9.1%
18.7%
10.5%
Tom's Targets    Overview: 07/14/2017
21,850 or 21,000 by 08/01/2017
9,950 or 9,400 by 08/01/2017
725 or 685 by 08/01/2017
6,450 or 6,175 by 08/01/2017
2,525 or 2,400 by 08/01/2017

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.

The following are my comments on market action, updated each trading day as time allows. You should not interpret anything I say as advocating buying or selling any security. See the privacy statement and disclaimer for more information.

Headlines

2/29/08: Human Resources

Automatic data processing stock

Let me say right off the bat that I own Hudson Highland Group (HHGP). I bought a small position on 2/15/08.

Second, a way to participate in yesterday’s housing analysis is to buy the UltraShort 2x Real Estate ProShares (SRS). You go long if you expect the real estate market to drop. The fund tracks the Dow Jones U.S. Real Estate index, so it is not an exact match with the homebuilding industry. The ETF moves twice as far in the inverse direction as the underlying index and the fund is also expensive at over $100 per share. The homebuilding industry plunged 6.2% and the fund was down 3.7% yesterday. I considered buying some this morning (2/29) but decided against it. I would look for a closer and less expensive match to the homebuilding industry.

Pictured in the chart is Automatic Data Processing stock on the daily scale. I show this stock as a sample of an industry that I believe has turned the corner and is now moving up, or at least has the potential to move up. A confirmed Adam & Eve double bottom appears at points A and B. Confirmation occurred at D when price closed above the peak at C.

I see overhead resistance denoted by the green lines and more resistance above that in blue. Downside is a support zone setup by a Fibonacci retrace of the move from B to D. I expect price to reverse there if it doesn’t move up from here. The chart pattern is also a Big W setup by the steep slide beginning at E. This suggests that price will climb to E, stall there for a bit before moving higher. That would be a gift, given the overhead resistance I see before then (as described already).

No analysis would be complete without a look at how other stocks in the industry are doing, so here they are.

Administaff (ASF) shows an Adam & Eve double bottom but this looks to bust out downward. The other stocks in this industry are doing well and this one is not participating. Find out why or don’t bother and avoid this one.
AMN Healthcare (AHS) also shows an Adam & Eve double bottom but this one has confirmed. Overhead resistance setup by a rectangle bottom in November and December are causing problems to a continued move up. Expect a Fibonacci retrace of the move up from the Eve low.
CDI Corp (CDI). This is a rounding bottom. Expect a retrace of the steep move up before heading higher. Overhead resistance setup by a symmetrical triangle will slow any move up.
Hewitt Associates (HEW).This is just moving up but expect a retrace since others in this industry will fall.
Hudson Highland Group (HHGP). I own this stock and expect to buy more. This is a tight head-and-shoulders bottom, confirmed. I expect price to move back into the knot of congestion just below where it is now, maybe touch the top of it. That would be a good buying opportunity. Above is resistance at 8-9 and then at 10 but clear sailing above that. As a long term holding, I can see this climb to 13 to 15 within a year. I have a stop at 6.60, below the knot I mentioned.
Kelly Services (KELYA). A V-shaped bottom with price now struggling to climb. Price might do a Fibonacci retrace of the move up from the January bottom.
Manpower (MAN). Another V-bottom, now struggling to climb.
MPS Group (MPS). A pipe bottom on the weekly scale followed by a nice move up. Will probably reverse and retrace just like the others.
On Assignment (ASGN). An extended V bottom and a nice one, too. Price might rise back to where the decline started in December (about 8). Just don’t depend on it.
Robert Half (RHI). I thought of buying some of this as a complex head-and-shoulders bottom but decided against it. Price will retrace back to the flat shelf (at 26 in January) before moving back up.
Volt Info Sciences (VOL). The most recent pattern is a pipe bottom or maybe a head-and-shoulders top is forming.

As the above describes, I expect stocks in the industry to retrace some of the gains from here before moving higher. That is a guess, of course. But this is an example of how I do my analysis when choosing stocks to buy. This industry seems to be saying that it’s bottomed and is poised to move higher. Since I own a small position in HHGP, one of the stocks in the group, be sure to factor that in.

-- Thomas Bulkowski

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2/28/08: Housing Industry and DHI

DR Horton stock

Yesterday, Lehman Brothers initiated coverage on a number of housing stocks, including this one, DR Horton, pictured. They suggested you overweight this issue (but other stocks in the industry were not so lucky). Was that a good call? Only time will tell, but I see danger in this industry.

From its low, Horton and many other housing issues have climbed at a fast clip from A to B. Price retraced to the green support line at D before forming a second peak at C. This is not an Eve & Adam double top until price retraces and closes below D, but it sure looks like one just waiting for confirmation. My guess is that price will drop rapidly as the red arrow suggests.

Other stocks in the industry and their latest pattern:

Beazer Homes, BZH, high and tight flag but the flag is quite wide and that suggests underperformance. This could also be a head-and-shoulders bottom, too, unconfirmed as yet.
Brookfield Homes, BHS, unconfirmed head-and-shoulders bottom. This might break out upward but appears to be stalling at the neckline.
Centex Corp., CTX, Eve & Eve double bottom, confirmed, and now trending up to form a double top (?).
Hovnanian Enterprises, HOV, high and tight flag with a wide flag (under performance), now forming an Adam & Adam double top.
KB Home, KBH, showing signs of forming an Adam & Adam double top.
Lennar, LEN. Another potential double top.
M/I Homes, MHO. A high and tight flag in which price has more than doubled. Looks like it needs a rest then another up surge to 27(?).
MDC Holdings, MDC. A potential double top.
Pulte Homes, PHM. A double top, unconfirmed.

With so many potential tops forming, it is more likely that price will drop than rise but you never know. Certainly caution is advised if you chose to trade any of these issues. I do not own any of them.

-- Thomas Bulkowski

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2/27/08: S&P 500 Symmetrical Triangle

The S&P 500 index

Price has closed outside the symmetrical triangle upper trendline, point A, signaling a breakout. I did not connect the low at B because I like the trendline being closer to the two minor lows, but it doesn’t matter much.

The Dow Industrials also show an upward breakout from a symmetrical triangle. The Nasdaq, however, is still mired within its symmetrical triangle.

I thought that the way to play this would be to buy a 2x ETF, meaning that price moves twice as far in those securities than the underlying. Symbols in this genre are DDM (2x Ultra Dow 30 ProShares), QLD (2x Ultra QQQ ProShares), and SSO (2x Ultra S&P 500 ProShares). The three symmetrical triangles in these are less well defined than the underlying but the shape is still there.

I’m not sure that I trust this move up. Certainly, on the S&P there is overhead resistance that I show by a down-sloping trendline. It is far away, so maybe a long buy on the SSO or DDM might be worth a look.

For the SSO (S&P), look for a target of 80 where the prior bottom in November and round number resistance might kick in, but be prepared if it reverses at 78 (the August low). Downside would be a stop loss of 67.31 which is below the spike low on Feb 22. A volatility stop would be 65.48, or 10% below the close of 72.75. That stop implies the ETF is volatile. No kidding. If you want to face a higher risk of being stopped out, then place a stop beneath a trendline connecting the lows of 2/7 and 2/20. That would be at a price of 69. Call it 68.93 just to be a bit safer and let the novice traders support price at 69.

For the DDM (Dow), I would look for a target of 81-82 because it lines up with the valleys in August and November. The ETF closed today at 77.20. Downside includes one of three stops: 70.87, a few pennies below the February 22 low, a volatility stop of 69.86, or below a stop formed by connecting the lows of 2/11 and 2/20 with an up-sloping trendline for a stop of 73.09. I view that last one as high risk because it is just below yesterday’s (2/25) low.

You can figure out your own win/loss ratios using these profit and stop loss targets. I fear that price will reverse so I do not own these securities. Price has been moving up for three days now. It’s probably due for a rest. Maybe a buy after the throwback completes would make a better trade.

-- Thomas Bulkowski

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2/26/08: DJ US Basic Materials Sector Index Fund (IYM) ETF

DJ US Basic Materials Sector Index Fund (IYM) ETF

The chart shows a broadening top chart pattern with three touches of the bottom trendline and four along the top. Since price is at the top of the chart pattern, the natural tendency would be to guess that the breakout will be upward. What do the statistics say?

According to a review of 493 broadening tops, exactly 49.6% broke out upward. That means a few more break out downward than upward. It really is a wash, of course.

One of the features of broadening patterns is a partial decline. In a bull market, those correctly predict an upward breakout 72% of the time. Point A is an internal partial decline. That is one that looks like it should have predicted an upward breakout (given that the pattern was fully formed at that point, which is important) but did not. Price continued moving between the two trendlines. That is one of the reasons I don’t like broadening patterns. They just don’t work well. I don’t trade them because I have been burned too many times.

-- Thomas Bulkowski

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2/25/08: MSCI Japan Index fund (EJW) ETF

The MSCI Japan Index fund (EJW) ETF

This shows another example of a symmetrical triangle. Which way will price break out is anyone’s guess. However, if the U.S. markets are any guide, it will be downward. Why do I say this? Because the Dow utilities have pierced the bottom trendline of a symmetrical triangle. The transports appear to be weakening, poking through the bottom of a congestion region from which they have been hanging for almost a month. The Dow industrials dropped through the bottom of a symmetrical triangle on Friday but were able to close right on the triangle trendline (from what I can see), so it’s not a breakout yet. The Nasdaq composite and S&P 500 also poked out the bottom of a symmetrical trianlge, but closed within it at day’s end. All of these US indices are making noises of tumbling. Whether that will occur we will probably find out this week.

-- Thomas Bulkowski

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2/22/08: Gold ETF

The gold ETF

The ETF shows what I thought a week ago was a head-and-shoulders top but it is not. Why? Because price never closed below the neckline. Instead, it morphed into a symmetrical triangle and broke out upward. Now, gold might -- just might -- be throwing back to the top triangle trendline before resuming the move up. I question that because lots of small candles occurred after the prior symmetrical triangle breakout and those did not result in a throwback. So, gold could keep on rising.

-- Thomas Bulkowski

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2/21/08: Global Technology ETF

The global technology sector index fund

The chart shows the S&P global technology sector index fund (IXN). Price has formed a symmetrical triangle that I show outlined by two converging red trendlines. Overhead resistance forms a barrier to an upward move, as shown by the green line drawn along the valleys. Just because I drew the line there is no reason to believe that the triangle will breakout upward and that price will decide to stop or even reverse there. If can do anything it pleases.

To determine a price target, use the height of the triangle from A to B projected either upward or downward from the breakout price (where the stock pierces one of the triangle’s trendlines). In this example, point A is at 52.50 and B is at 59.64 for a height of 7.14. Assuming an upward breakout at 57, the target would be 57 + 7.14 or 64.14. If the triangle were to breakout downward at 55.90, the target would be 48.76 (which is 55.90 - 7.14). That "full measure" works 66% of the time. For a closer target, multiply the 7.14 height by 66% and the apply it to the breakout price. That would give targets of 61.71 and 51.19.

-- Thomas Bulkowski

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2/20/08: S&P 500 Symmetrical Triangle

The S&P 500 index

The chart shows the S&P 500 Index on the daily scale for the last several months. The reason I show this one again after about a week is that the major indices (DJ utility, industrials, Nasdaq composite, and this one) are showing the same pattern: a symmetrical triangle. I show that here, outlined in red. This one happens to be a bottom pattern, but do not be fooled: Price can break out in any direction it darn well pleases. Thank you, very much!

According to the numbers, symmetricals break out upward 54% of the time and continuations occur 55% of the time. If this pattern acts as a continuation, then look for a downward breakout. All of the symmetrical triangles suggest indecision. We will have to wait to see which way price breaks out.

One unique feature of symmetrical triangles is that price tends to reverse direction at the triangle apex. The apex is where the two red trendlines converge. When the index reaches that point, or nears it, the direction reverses 60% of the time (a trend change) and it forms a minor high or low 75% of the time (following that, price resumes the original trend). That means price should reverse direction in about a week. That may come in the form of a throwback or pullback, depending on the breakout direction.

-- Thomas Bulkowski

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2/19/08: Home Construction

The DJ US home construction index fund

Shown in the figure is the DJ US home construction index fund (ITB). To the right of the red line is how a head-and-shoulders bottom would look, if the index plays out like I think it might. Price will continue lower for a week or two and then turn up, leaving a right shoulder to print on the chart. The up turn at the right shoulder low might be called by additional FED lowering of interest rates or some other event.

Why a head-and-shoulders bottom? From the shape of the left shoulder valley (LS) to the sweeping move up and then down again to the head, it just looks like it’s aching to form a mirror of the left shoulder on the right side. This is a guess, of course, but in the absence of anything else, it will have to do.

-- Thomas Bulkowski

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2/15/08: FTSE/Xinhau China 25 Index Fund

The China ETF appears and shows a symmetrical triangle

The chart shows the China ETF and it is one of indecision. In the last month, the fund has entered what looks to be a symmetrical triangle formed by two converging blue trendlines. I drew the green line along the bottom of the triangle, backward in time to the congestion area in July. Along the tops, I drew a red line. This line represents overhead resistance. If the ETF does break out upward, then look for it to throwback at the red line especially since it coincides with the three valleys in November and December (numbered).

-- Thomas Bulkowski

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2/14/08: S&P 500

Chart of the Standard and Poors 500 Index

The chart shows the S&P 500 index on the weekly linear scale. I drew a red trendline connecting the lows. If you draw the same line on your chart, it may connect at point C at different locations, depending on scaling (the aspect ratio). I had that problem when converting a larger picture of this image to the one you see.

What it shows is that the index has intersected the trendline at C and is finding support there. Since the trendline is a long one, stretching as far back as October 2004 in this figure, with several touches along the way, the trendline is a formidable opponent. The index could turn here and move up. Alternatively, it could move down. If it does drop, then it forms a chart patterns called a bump-and-run reversal top. The lead-in phrase is the first quarter of the pattern. The height of the lead-in phase should be half the height of the bump phase or less (meaning a huge bump in comparison). The lead-in height I show here as the difference between A and B, measured vertically. It’s 1217-1101 or 116 points. The bump phase begins when the trend moves up at a faster clip, starting in July 2006. From the trendline break of 1353 at C, the measure would be 116 points below this, or 1237. In 80% of the cases I looked at, the index dropped to that price so the target serves as a minimum. The lowest point near C is 1270, so the index has nearly reached the target once.

Since the index has nearly reached the target once, does this mean the downward move is over? A look at the other indices is worth a glance. The utility average looks similar. It is resting on a trendline drawn along the lows starting in August 2006. Price remains above the trendline.

The transports are a basket case. You can start your trendline from July 2005 or March 2004 and the trany’s are well below the July line and look to be executing a pullback to the March line. That suggests a continued decline.

The industrials remain above a trendline drawn from October 2005 and an earlier one in October 2004. It also looks like a bump-and-run reversal top in the making.

The Nasdaq has touched a trendline started from a low on August 2004.

This doesn’t tell me anything. The lines are near a support area. If price rebounds then expect the uptrend to continue. If the indices push through the trendlines, through the support area, then expect a continued decline. I still want to believe that this is a buying opportunity now, but fear that an ugly double bottom on the daily charts for the indices are just a sucker’s trap. They will lull you into thinking that the move is upward when it’s not. So, I remain somewhat bearish, expecting price to continue moving down until we get a clearer picture of a direction. I have not received any buy signals that bullish chart patterns are forming in great numbers again as I did a week ago. If that were to occur, it would mean a bullish turn. Having said that, the chart pattern indicator has turned bullish. I see lots of stocks to buy but consider them risky. The move up from their lows was a straight line and the tendency would be for buyers to snag these stocks and watch then do a 50% retrace of the prior up move. You’ll be stopped out for a loss just as prices are ready to reverse and move up.

-- Thomas Bulkowski

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2/13/08: Hong Kong ETF

Potential double bottom in the Hong Kong ETF

The figure shows an interesting development in the MSCI Hong Kong ETF (EWH). Price formed a double top at peaks D and E, confirmed when price closed below the valley between the two peaks, at F. Following that, a symmetrical triangle appeared (highlighted by the blue trendlines). What is interesting about this symmetrical is that the apex at A often marks a turning point. As you can see, point A is above C, so I expect the market to rebound here. That’s a guess, of course but if it’s correct, then look for a double bottom at B and C to form and confirm as valid when the ETF rises above the peak between lows B and C. At a minimum, this should be good for a 5% move up.

-- Thomas Bulkowski

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2/11/08: Gold ETF

StreetTRACKS Gold Shares ETF showing a head-and-shoulders top

Shown in the chart is an exchange traded fund (ETF) that tracks gold. The security formed a nice looking symmetrical triangle during November and December with an upward breakout. Now, however, it appears to be forming a head-and-shoulders top. It is not a head-and-shoulders top yet because price has not closed below the neckline (green line) formed by connecting the two armpits.

Let’s say that the head-and-shoulders does confirm, then what would be the price target? The peak at the head is 92.58 and the price at the neckline directly below is 86.70 for a height of 5.88. Since the measure rule for a head-and-shoulders top works only 55% of the time, multiply the height by 55% to get a adjusted height of 3.23. Subtract this from where price is expected to pierce the neckline, say 88, and we get a target of 84.77. Using the full height, the target would be 82.12.

-- Thomas Bulkowski

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2/8/08: Nasdaq Composite: Head-and-shoulders Top

The Nasdaq Composite on the weekly scale

Shown in the chart is the Nasdaq Composite index on the weekly scale. A head-and-shoulders top (LS=left shoulder, RS=right shoulder) appears during the summer and it correctly predicts a downward move. How far will price fall? Compute the height of the head-and-shoulders from the peak at the head to the neckline directly below. I show that point by a red dot. The measure is 2861 - 2491 for a height of 370 points. Subtract this from the breakout price of 2590 (point A) to get a target of 2220. Price reached that target during the week of January 22 (point B). For a more conservative target, multiply the height (370) by 55% because that is how often the measure rule for a head-and-shoulders top works. That gives an adjusted height of 204 for a closer target of 2386.

The Nasdaq Composite on the weekly scale

Since price has reached the target, does this mean that the downtrend is at an end? No. Many will tell you that the price target serves as a minimum decline, not a maximum. On a longer term chart, stretching back to the valley during August 2004, drawing a trendline connecting the valleys shows that price pierced that trendline by a little before recovering. I show that point circled in the accompanying chart. The index will likely approach the trendline again. What happens after that is anyone’s guess.

-- Thomas Bulkowski

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2/7/08: Transports: Descending Broadening Wedge

The Dow Jones Transport Average on the weekly scale

The chart shows the Dow transports on the weekly scale with two red lines outlining a descending broadening wedge. A full 79% of stocks showing a descending broadening wedge breakout upward, so maybe there is hope for the transports after all. If they do, then the target price would be the top of the wedge, or about 5,000.

Another possibility is that the transports will do a partial decline after touching the top trendline. In that pattern, price drops, curls around, and then busts out the top of the pattern. A descending broadening wedge has a partial decline 62% of the time and it correctly predicts an upward breakout 87% of the time in a bull market.

-- Thomas Bulkowski

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2/6/08: Transports: More Down

The utility average did not bounce upward to touch the 62% retrace line as I expected before yesterday’s open. Instead, the average just tumbled along with the general market.

The Dow Jones Transport Average on the weekly scale

Today, premarket, here is a look at the Dow transports. The chart shows that the average did not quite make it up to touch the trendline connecting peaks C and D. This suggests weakness. It also coincides with the congestion area I show circled in magenta with the horizontal line pointing to B. If the trany’s were to move higher, they would have to fight their way through this congestion and close above C. Only then would I consider the up move to have staying power.

The three Fibonacci retrace values of 38%, 50%, and 62% I show on the chart. These mark the percentage retrace of the AB move. The transports have had a good uphill run from the low at A and I expect them to fall back.

The first target would be the green line setup by the congestion area in early November. If you go back a few years, the line corresponds with prior peaks and valleys, so it is stronger that one would expect. However, the undertow setup by the falling general market suggests that this support zone will not hold. That is a guess, of course. If the average pierces that, moving down, then the 38% retrace line is the next support area. Below that, there is no real strong support until it drops to the November low, shown as the horizontal red line between the 50% and 62% retrace values. If the general market is still weak as the transports drop, then the turn could come as late as the 62% retrace line. That would also match the November valley (horizontal red line) and the congestion area in January, circled in blue.

-- Thomas Bulkowski

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2/5/08: Utilities Brief Rise then Down

Last year the Dow Jones Utility Average was the best performing of the five indices.

  • Utilities: 16.6%
  • Nasdaq: 9.8%
  • DJIA: 6.4%
  • S&P 500: 3.5%
  • Transports: 0.2%
The above table shows the change from the close on December 29, 2006 to December 31, 2007 and does not include dividends. If it did, then the utility average would do even better. I was fortunate to have the highest concentration of my portfolio in utility stocks last year (find the three worst performing utility stocks last year and you’ll be close to the ones I chose).

The Dow Jones Utility Average on the weekly scale

Looking at the chart on the right, which shows the utility average on the weekly scale, notice the average dips in both January 2007 and 2008. Price at the first half of last year made a near straight-line run upward until May and then stumbled. Will it produce a similar performance this year? I will let you know at year’s end.

Right now, the average is bumping up against the 62% Fibonacci retrace line. That level is 62% of the move from D to C. Also, overhead resistance setup by prior peaks highlighted by the horizontal red line might pose a problem for the average. On the plus side, interest rates are declining and that is good for the industry which has a lot of debt to finance all those utility plants and other infrastructure. But the warmer than expected weather earlier in the winter caused some pain, and that’s why the average dropped from D to C.

This is how I see the utility average shaping up: In the short term, the average will continue the move up until it reaches overhead resistance (probably at the 62% line but maybe the red line), turning down, and then making a higher low (perhaps dropping all the way down to the up-sloping green trendline before staging a recovery on a new push to the summit, D.

I only own one utility stock now but it represents a significant holding. When price approaches D, then I will consider selling if I see the stock top out. Since it is a long term holding, I am not interesting in selling it now. I will ride out any downturn and collect the nearly 6% dividend.

-- Thomas Bulkowski

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2/4/08: Dow Down From Here

The Dow Jones Industrial Average showing Fibonacci retrace values

The chart shows the Dow Jones Industrial Average with Fibonacci retrace values highlighted. They are the three red lines at 38%, 50%, and 62%, and they mark the upward retrace of the move from A to B. The lines represent common reversal points. So far, a reversal hasn’t happened, but we are right at the 62% line after a week of strong gains. Based on this and other charts, I sold a stock this morning (Charlotte Russe Holding, CHIC), expecting a short term reversal to occur.

Of course, the Dow could continue rising and the next turning point would be 75%. However, if that were to happen, I would say that the bull run is intact, and I would have to look for the next turning point.

-- Thomas Bulkowski

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2/3/08

I spent all day yesterday (Saturday) and part of today reviewing stocks and believe that the market is due for a reversal. Looking at the 30 Dow issues, I found that 23 of them are within a day or two of overhead resistance. Nothing is for certain, but it implies that the short-term uptrend that we have been enjoying for the last week or two is about over.

In many stocks that I looked at, I see straight-line runs off a bottom, such as the Georgia Gulf move from B to E. Stocks almost never move in a straight-line for long, so some type of pullback is about due. After the retrace ends, then I will be buying again. Until that time, I think I will sell another of my short-term plays and take the 8% gain. I may be premature in this bearish assessment, but I want to keep the gains I’ve accumulated. My mouth is still watering at all of the stocks I view as trading at bargain basement levels. If they would only cooperate and form double bottoms then I’ll be happy.

-- Thomas Bulkowski

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2/1/08: Dow Up Move Ending?

Updated chart of the Dow Jones Industrial Average

Shown to the right is a chart of the Dow Jones Industrial Average on a weekly scale. Peaks A, F, and B, outline a head-and-shoulders top chart pattern. Point E is another shoulder well away from the others (A and B). In many chart patterns, symmetry occurs often. Like the head-and-shoulders top, you have a shoulder on the right that is mirrored by the one on the left. In a perfect pattern, the distance from the head in both time and price would be the same. In reality, that is rare, and yet the pattern should look like the upper body of a normal human.

If mirroring occurs to form a complex head-and-shoulders top, meaning a right shoulder forms the same distance in price and time to shoulder E, then you could expect it to look like D or C. Shoulder D is what I originally expected. Price climbs to reach the price level of the horizontal line beginning at E and extending to the right. The distance from the two shoulders D and B would be similar to E and A. In short, I expected price to take it’s time climbing to D from the low after B. Instead, it shot up in one week.

If you look at the Nasdaq composite and the S&P 500 Index, you will see that price still has a ways to go before reaching the level of the left shoulder (that is, a peak). This suggests that the Dow will also take more time to peak, likely forming peak C. Also notice that peak B does not rise up to the level of peak A. It may be that shoulder C compensates for that failure by climbing well above the price of peak E. In other words, the far right shoulder will be higher than the one on the left. I have no real basis for saying this, only that the market seems to be strong now but knowing that an IED could explode and take the market down in short order.

If this analysis is correct, then open long positions still have room to grow, certainly on a time basis but less so on a price basis. Since price has about reached the high of E, a downturn could come at any time. I feel hopeful about the market, especially the action this week has benefited more than the stocks in the Dow (meaning my portfolio got a big boost, and that’s what matters most to me). Earnings are coming out now, so adverse reports may force the market to drop. I have several stocks that I want to buy but they have to report earnings first before I venture in. Jumping in now risks a dead-cat bounce, where the stock drops by half in one session.

-- Thomas Bulkowski

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