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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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Busted
Patterns
Candles Chart
Patterns
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Patterns
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Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 04/28/2017
20,941 -40.82 -0.2%
9,098 -96.36 -1.0%
704 -3.23 -0.5%
6,048 -1.33 0.0%
2,384 -4.57 -0.2%
YTD
6.0%
0.6%
6.8%
12.3%
6.5%
Tom's Targets    Overview: 04/17/2017
20,100 or 21,150 by 05/01/2017
8,500 or 9,500 by 05/01/2017
725 or 685 by 05/01/2017
6,150 or 5,900 by 05/15/2017
2,275 or 2,425 by 05/01/2017
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.

February 2010 Headlines


Archives


Thursday 2/25/10. Pipe Bottoms Mean Party Time!

Pipe bottom chart pattern

I want to thank Jerzy Zietek, Jason Campbell and others for emailing me their suggestions on how to sell a long term holding. If you have any ideas, please drop me a line and tell me about it. For more information, read this.

# # #

Let's talk about pipe bottoms.

I discovered pipe tops and bottoms years ago when I pondered double tops and bottoms. I wondered how the double top/bottom patterns would perform as the two peaks appeared closer and closer together. That's how I discovered horn tops and bottoms and then pipes.

Here's the ID Guidelines for the pattern accompanied by an ideal chart of the pattern to the upper left.

CharacteristicDiscussion
Weekly chartPipes appear on the daily scale but the ones on the weekly charts perform better. Use the weekly chart.
Price trendDownward leading to the pattern.
ShapeTwin and adjacent downward spikes.
SpikesThe spikes should be longer than most others in the past year. Longer is better.
OverlapThe 2 weeks should have a large price overlap (66% average) but need not bottom at the same price. The bottom price variation averages 24 cents.
VolumeMost pipes show above average volume on one or both spikes.
ObviousThe pipe should stand-alone and be obvious on the chart. The spike should clear the surrounding price action.
DowntrendsThe best performing pipes appear at the end of downtrends.
ConfirmationThe pattern confirms (becomes a valid pattern) when price closes above the highest high in the pattern.

I chose the Dow transports to illustrate what a pipe bottom looks like because it was the first security I found that had a recent pipe.

Picture of Dow transports on the weekly scale.

During my tour of duty finding pipe bottoms each week, and living through the 2000 to 2002 bear market, I found that an inordinate number of pipes appear at market bottoms. They may not appear in the indexes but they show in individual stocks.

Since February 1, for example, I found 92 of them, 76 just last week. Large numbers tend to predict market turning points. The turn may not last long, but it usually means a decent rise in the markets and the individual stocks themselves.

I show the Dow transports on the weekly scale as an example, You can see that the pipe bottom at A was a wonderful call. I show a recent pipe bottom at B along with another, labeled Pipe. Yes, it's a cleaver label.

The most recent rash of pipes may suggest that the indices will rise to form double tops. After that, who knows? Even that kind of a climb is not a sure thing, either. But the preponderance of pipe bottoms does suggest that many stocks are moving higher. If you are short them, then be worried.

-- Thomas Bulkowski

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Tuesday 02/23/2010. Tutorial Tuesday: How to Prevent Buying Too Soon.

Before I get into today's tutorial, I need your help. For over a year now, I've been doing research and writing my next book. Do you have any tips on when to sell a long term holding? If so and you would like to share it with the world (meaning I might use what you tell me in the book), then please email me with the details. I want to hear what works for you. Write to me at my email address.

# # #

Picture of Boeing (BA) on the weekly scale.

On the right is a picture of Boeing (BA) on the weekly scale. I wanted to show this on the daily chart, but the moving average disappears because of a lack of data. Anyway, if you use a 150-day or 30-week moving average (they are the same, but for the daily/weekly chart, respectively) to qualify your purchases, it could prevent you from buying too soon. Here's how.

I use a simple moving average instead of an exponential or other variety. The SMA tends to hug price better in a turn than the EMA, which surprised me, but that's what I found. If price is below the SMA, then do not buy the stock. I show Boeing as it dropped during the 2007-2009 bear market. When price climbed above the moving average at A, that was a buy signal. If you prefer, B is another buy signal which often occurs when price tests or throws back to the moving average.

In a long down turn, that one step of waiting for price to rise above the 30-week moving average can save you a bundle of money. Play with it and see if it helps.

The red LS and RS symbols on the chart are the left and right shoulders of a head-and-shoulders bottom chart pattern, by the way.

-- Thomas Bulkowski

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Monday 02/22/2010. Market Monday: The Week Ahead

A Brief Look Back

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

Tuesday: Up 169.67 points.
Wednesday: Up 40.43 points. Housing starts and building permits were higher than expected.
Thursday: Up 83.66 points. Initial and continuing jobless claims were higher than expected.
Friday: Up 9.45 points. Inflation was lower than expected.

For the week...

The Dow industrials were up 303.21 points or 3.0%.
The Nasdaq composite was up 60.34 points or 2.8%.
The S&P 500 index was up 33.66 points or 3.1%.

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
Consumer confidence10:00 TB-Surveys 5,000 households for trends.
New home sales10:00 WC+Shows sales of single-family homes.
Crude inventories10:30 W?My guess: Measures oil inventory.
Initial jobless claims8:30 ThC+Counts people filing for state unemployment benefits.
Durable goods orders8:30 ThBMeasures orders, shipments of goods with lifespans >3 years.
Gross domestic product8:30 FBMeasures economic activity; GDP deflator measures inflation.
Chicago purchasing managers index9:45 FBMonitors regional manufacturing activity.
Existing home sales10:00 FCCounts sales of used homes.

Options Expiration

No options expire this week.

CPI: Chart Pattern Indicator

As of 02/19/2010, the CPI had:

3 bearish patterns,
123 bullish patterns,
397 patterns waiting for breakout.
The CPI signal is 97.6%, which is bullish (>= 65%).

The chart pattern indicator is bullish with 2 of 3 full triangles showing (). Additional triangles are a measure of strength with solid triangles meaning a more reliable signal than half triangles.

Other

Earnings season is over or nearly so.

I found 37 pipe bottoms last week, which is very bullish! Large numbers of pipe bottoms often signal the start of a short to intermediate-term move up before price curls back down, forming an unconfirmed double bottom. I think of it as the signal for the first bottom of a potential double bottom.

Since price is already trending upward in many stocks, lots of pipe bottoms confirm the new trend, but it does not say how long it will last.

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

This WeekLast Week
1. Coal1. Toiletries/Cosmetics
2. Toiletries/Cosmetics2. Coal
3. Shoe3. Shoe
4. Internet4. Internet
5. Air Transport5. Furn/Home Furnishings
48. Electric Utility (East)48. Securities Brokerage
49. Trucking/Transp. Leasing49. Trucking/Transp. Leasing
50. Cement and Aggregates50. Cement and Aggregates
51. Alternate Energy51. Short ETFs
52. Short ETFs52. Alternate Energy

My Prediction

Picture of the Dow Utilities on the daily scale.

Pictured is the Dow utilities on the daily scale.

The index touched bottom at A and then formed another bottom at B, resting on support. This is an unconfirmed double bottom. It will turn into a valid, confirmed pattern when the index closes above the peak between A and B.

The drop from C to B with a slight pause at D is a measured move down chart pattern. After a measured move down, price often percolates back up to the corrective phase, which I show circled. Just 16% of the time does price remain below the corrective phase. In 35% of the cases I looked at, price hits the corrective phase and stalls or reverses there.

I expect the utilities to show weakness in the coming days due to the large gain last week. Following that, the index should rise into the corrective phase, perhaps on a strong move up on Friday when existing home sales are announced.

Longer term, I expect the index to get hung up in the corrective phase D before making its next move. What direction that move will be is anyone's guess.

-- Thomas Bulkowski

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Thursday 2/18/10. What's in My Portfolio?

Picture of a flower from my garden.

The picture on the right is from my garden this past summer.

I spent most of Wednesday either hunting down tools to cut my broken live oak branches or actually cutting them. Recently, we received 14 inches of snow and my live oak tree couldn't support the weight, so over a dozen branches snapped like twigs. Today (Wednesday), I crawled up the tree with a bow saw and cut off the snapped branches. Why? Because Home Depot and Lowes didn't have electric pole saws in stock, at least not the one I wanted. I bought a manual saw for about $30 and used it just once. Waste of money. The bow saw worked better but that meant climbing into the tree 30 feet up and sawing away, hoping the falling branches would not take out the 16 foot ladder perched below.

I didn't fall out of the tree nor did I have any close calls, thankfully. I bought an electric chain saw, read the manual, and went to work. Didn't use it much, except for the large diameter branches, since I preferred the bow saw. It chews through wood just as quickly as the chain saw, but it's a lot safer. Having said that, I didn't have an accident with the chain saw but did with the bow saw. I nipped my pinky but it was too slight to even bleed through my glove. Anyway, my two car driveway is filled with brush, blocking both lanes and the pile is about as tall as me. I sliced the branches up and stacked firewood. Live oak is a wonderfully burning wood. No popping but the stuff I just cut is green, so it will have to wait for next year's fireplace.

# # #

Since I am short of time (it's late Wednesday evening) and I want to make this blog posting interesting, I thought I'd share some of what's in my portfolio. As you may gather, I don't discuss what I own. Usually, after a trade has completed will I discuss a stock or ETF holding. That prevents you from laughing too loudly at my picks or worse, buying or selling the stock ahead of me. I do disclose my shopping list but I often don't buy the stocks listed. By that, I mean they do not pan out as good candidates, so I toss them. However, every stock I buy comes from that watch list.

As of today, I own 28 stocks and 5 ETFs (exchange traded funds), for a total of 33 holdings. None of the individual stocks or ETFs represent more than 7% of the total, so it's a diversified mix, but by industry, the percentages are higher.

In the past, I thought it ludicrous to own more than about a dozen stocks but that changed during the 2007-2009 bear market. I wanted diversification, so I just kept buying stocks that I felt had potential to triple in 2 to 3 years, but keeping the money invested in each trade small (but I bought some multiple times).

I'm fully invested with just 5% in cash. Here's the breakdown: Eastern electric utilities represent 6% of my holdings, Central elec utilities: 10%, diversified insurance: 13%, petroleum (producing): 5%, building materials: 3%, life insurance: 11%, furniture/home furnishings: 7%, semiconductor cap. equipment: 2%, Western elec utility: 8%, Apparel: 6%, specialty retailers: 4%, biotechnology: 10%, Oilfield services and equipment: 3%, property and casualty insurance: 6%, and specialty chemicals: 3%.

If you were to add up the percentages, that should equal 100% but probably don't due to most being rounded up. Unfortunately, the numbers do not include the ETFs, so the ownership percentages listed are actually lower. For the ETFs, I have 5% in agriculture, 3% in basic materials, 2% in natural resources, 3% in financials, and 3% in regional banks.

-- Thomas Bulkowski

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Tuesday 02/16/2010. Market Monday on Tuesday: The Week Ahead

A Brief Look Back

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 103.8106 points.
Tuesday: Up 150.21 points. Wholesale inventories dropped more than expected.
Wednesday: Down 20.2196 points. The trade balance declined.
Thursday: Up 105.81 points. Initial jobless claims and continuing claims were fewer than expected.
Friday: Down 45.05 points. Retail sales were above expectations and business inventories dropped.

For the week...

The Dow industrials were up 86.9398 points or 0.9%.
The Nasdaq composite was up 42.4099 points or 2.0%.
The S&P 500 index was up 9.3201 points or 0.9%.

Economic Reports

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

ReportTimeA-F
Rating
Description
Housing starts8:30 WB-Number of homes beginning construction.
Industrial production9:15 WB-Production of utilities, mines, and manufacturers.
Treasury budget2:00 WDTracks budget deficit. Important in April (tax filing).
Producer price index8:30 ThB-Measures wholesale goods cost. An indication of future inflation.
Initial jobless claims8:30 ThC+Counts people filing for state unemployment benefits.
Leading indicators10:00 ThD-Summary of already known reports.
Crude inventories10:30 Th?My guess: Measures oil inventory.
Consumer price index8:30 FB+Inflation report. Measures cost of goods and services.

Options Expiration

The following is courtesy of yahoo!finance and they stole it from The Options Industry Council.

OptionDate
VIX, RVX expireWednesday
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).

CPI: Chart Pattern Indicator

As of 02/12/2010, the CPI had:

8 bearish patterns,
29 bullish patterns,
377 patterns waiting for breakout.
The CPI signal is 78.4%, 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.

Other

Earnings season is over or winding down.

I found 2 pipe bottoms last week, which is mildly bullish. Large numbers of pipe bottoms often signal the start of a short to intermediate-term move up before price curls back down, forming an unconfirmed double bottom. I think of it as the signal for the first bottom of a potential double bottom.

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

This WeekLast Week
1. Toiletries/Cosmetics1. Toiletries/Cosmetics
2. Coal2. Coal
3. Shoe3. Shoe
4. Internet4. Internet
5. Furn/Home Furnishings5. Diversified Co.
48. Securities Brokerage48. Securities Brokerage
49. Trucking/Transp. Leasing49. Trucking/Transp. Leasing
50. Cement and Aggregates50. Cement and Aggregates
51. Short ETFs51. Short ETFs
52. Alternate Energy52. Alternate Energy

My Prediction

Picture of the nasdaq on the daily scale.

I show the Nasdaq composite on the daily scale. There is nothing exciting to report. The index has been volatile lately, judging by the price gaps and the loose looking structure that it formed during November and December.

A thin downward spike formed in November and the index has bounced off that support zone. I show it as a horizontal red line.

Where the index bounced in early February, the spike is called a tail. Those individual spikes, where price opens and closes near the top of the price bar while the lower end is well below the surrounding price action, often leads to rallies. In fact, downward tails are more reliable in denoting a short-term trend change than are upward ones. You can read more about tails here.

For the coming week, many economic reports are rated B, so that suggests strong moves, but I don't see the index traveling far. I could be wrong since I'm only guessing...

-- Thomas Bulkowski

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Thursday 2/4/10. Blog Suspended For Several Days! Film at 11:00!

Picture of my dog with her ears up

Update: I'll resume posting this Friday.

I am working on a project that requires my full attention for several days, so I am suspending blog posts and emails until it's finished. While waiting, have a look at the following links.

Site Map: Lists almost every page on the website.

Quiz: Take one of 158 quizzes, perhaps one based on an actual trade. Comes as a compressed file that contains a Word document.

My trades: These pages take you through some of my trades. These are different than the quizzes.

Research studies: 45 studies on how the markets behave, or misbehave.

Tutorials: 40 tutorials are just waiting to teach you what you need to know to make money in these markets

Trading class: This is a wimpy attempt at a trading class by cobbling together various web pages that novice traders need to know.

Trading setups: Perhaps there is a setup that you can use.

Event patterns: Learn about a dozen event patterns before one takes your stock for a ride.

-- Thomas Bulkowski

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Tuesday, 2/2/2009. Tutorial Tuesday: How Far Will Market Move?

Up trendline measure rule

An email from Tanxia posed this question and it makes for a good review: How do I estimate how far price will go?

Trendlines offer clues as to how far price is going to rise (down sloping trendlines) or tumble (up-sloping ones). Let’s take the case of an up-sloping trendline to gauge how far price is likely to drop.

The figure to the right shows an up-sloping trendline with price breaking out downward at point B.

From the breakout, find the prior minor low trendline touch. I show it as point A. Measure the widest distance between those two points (re, A and B), measured vertically. In this case, that’s the distance from C to D. Multiply that distance by 63% because that’s how often this method works when a full height is used, and project the result downward from the breakout price (B) – the point where price pierces the trendline.

For example, if the high at C is 10 and directly below that at point D, the trendline is at 8, the difference is 2. Multiply this by 63% to get 1.26. Suppose the breakout at point B is at 9. That would give a price target of 7.74 (9 – 1.26). If the projected decline is less than 0, ignore the result.

Down trendline measure rule

For down-sloping trendlines, use the measure rule to predict how far price will rise after an upward breakout (a price pierce) from the trendline. The figure to the left shows a down-sloping trendline with price breaking out upward at point B. From the breakout, find the prior minor high trendline touch. I show it as point A. Measure the widest distance between those two points, measured vertically. In this case, that’s the distance from C to D. Multiply that distance by 80% because that’s how often this method works when a full height is used, and project the result upward from the breakout price – the point where price pierces the trendline.

For example, if the low at C is 10 and directly above that at point D, the trendline is at 12, the difference is 2. Multiply this by 80% to get 1.60. Suppose the breakout at point B is at 11. That would give a price target of 12.60 (11 + 1.60).

If you use the full height of the CD move in either case, the success rate is 63% and 80%, respectively. Multiplying the CD height by 63% or 80% boosts the success rate into the 90% or above region. The above links provide more information on trendlines. My Trading Classic Chart Patterns book, pictured on the right, takes an in depth look at trendlines. The analysis proves what others don't, that long trendline work better than short ones, the more touches a trendline has is important, and so on.

Do I use the trendline measure rule or other measure rules for chart patterns and candlesticks? No. Why not? Because it's too complicated and every situation is different. I prefer to use underlying support or overhead resistance. I can do that just by looking at the chart without need for a calculator. For candlesticks, I have my program setup to not only identify each candlestick, but to project price targets based on the measure rule for them. I use that sometimes to help estimate how far price is going to move in the very short term.

The measure rule is discussed in each chapter of my two encyclopedia books for the associated chart patterns and candlesticks.

-- Thomas Bulkowski

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Monday 02/01/2010. Market Monday: The Week Ahead

In an email today (Sunday), Gary wanted me to pass along this tip for traders facing hesitation when buying. "At first, buy and then get out quickly (either at the very first profit or, as always, at a stop loss). The point here is to at least do the real trade beyond paper and to gain confidence with low risk repetitions."

# # #

A Brief Look Back

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 23.88 points. Existing home sales were lower than expected.
Tuesday: Down 2.57 points. Consumer confidence was higher then expected.
Wednesday: Up 41.87 points. New home sales were down and crude inventory dropped.
Thursday: Down 115.7 points. Initial and continuing jobless claims climbed, but durable good orders rose.
Friday: Down 53.13 points. GDP was unexpectedly good.

For the week...

The Dow industrials were down 105.65 points or 1.0%.
The Nasdaq composite was down 57.94 points or 2.6%.
The S&P 500 index was down 17.89 points or 1.6%.

Economic Reports

The following information is derived from yahoo!finance and times are local to the east coast. The "Dow Moved" column is the close-to-close price change of the Dow industrials on the release day from the prior trading day, the last time the report came out.

ReportTimeA-F
Rating
Dow
Moved
Description
Personal income & consumption8:30 MC++1Measures sources of income to predict future demand.
Construction spending10:00 MD+156Covers residential/non-residential/public spending on new construction.
Auto & truck sales2:00 TC--12Monthly sales of domestically produced vehicles.
Crude inventories10:30 W?+42My guess: Measures oil inventory.
Initial jobless claims8:30 ThC+-116Counts people filing for state unemployment benefits.
Productivity & costs8:30 ThD+?Cost of producing a unit of output.
Factory orders10:00 ThD+-12Durable/non-durable goods orders w/factory inventories.
4 Employment reports8:30 FA+11Nonfarm payrolls, unemployment rate, avg workweek, hourly earnings.
Consumer credit3:00 FD-+11Measures auto, credit card and other debt.

Options Expiration

No options expire this week.

CPI: Chart Pattern Indicator

As of 01/29/2010, the CPI had:

51 bearish patterns,
3 bullish patterns,
172 patterns waiting for breakout.
The CPI signal is 5.6%, which is bearish (<= 35%).

The chart pattern indicator is bearish with 2 of 3 full triangles showing (). Additional triangles are a measure of strength with solid triangles meaning a more reliable signal than half triangles.

Other

Earnings season is underway. The sessions could be more volatile.

I found 1 pipe bottoms last week, which is neutral. Large numbers of pipe bottoms often signal the start of a short to intermediate-term move up before price curls back down, forming an unconfirmed double bottom. I think of it as the signal for the first bottom of a potential double bottom.

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

This WeekLast Week
1. Toiletries/Cosmetics1. Coal
2. Coal2. Toiletries/Cosmetics
3. Shoe3. Chemical (Specialty)
4. Internet4. Internet
5. Diversified Co.5. Air Transport
48. Securities Brokerage48. Securities Brokerage
49. Trucking/Transp. Leasing49. Electric Utility (East)
50. Cement and Aggregates50. Cement and Aggregates
51. Short ETFs51. Alternate Energy
52. Alternate Energy52. Short ETFs

My Prediction

Picture of the Dow utilities (^DJU) on the daily scale.

Pictured to the right is the Dow utilities on a daily scale. A busted broadening top appears and I say busted because price broke out downward from the pattern and then reversed. When that happens, it usually (but not always) suggests a strong move in the new direction.

The congestion area circled at A I see as lending support to the utilities. Thus, I don't expect much of a drop, but the index could continue lower for a few days. I expect it to rebound as the five red lines indicate.

The reason I expect a sharp reversal and not a rounded one is from the shape of valleys B, C, and D.

In research on the shape of tops, I found that sharp peaks often follow sharp peaks and rounded turns follow rounded ones. I'm assuming that analysis applies to bottoms, too.

-- Thomas Bulkowski

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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. Use the best: Linux for servers, Mac for graphics, and Windows for Solitaire.