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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
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.

February 2011 Headlines


Archives


Monday 2/28/11. Market Monday: The Week Ahead

My Prediction

Picture of the S and P 500 index on the daily scale.

The chart shows a picture of the S&P 500 index on the daily scale.

Not much has changed in the indices since last week, which is to say, no defined chart patterns have appeared. The market has recovered from its fear that the world was coming to an end alongside the government in Libya. That temporary setback shook the markets and brought them down a notch, just far enough to stop me out of several stocks that I wanted to hang on to. Sigh. I'll be reporting on those trades in coming posts.

I see the S&P index finding support between the red lines and now moving higher. I think this brief downturn is just that, brief. I've been expecting a correction and I guess a violent one like we saw recently is better than a slow, grinding decline. Get it over with fast and now lets move back to higher territory.

Top

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.

Tuesday: Down 178.46 points.
Wednesday: Down 107.01 points.
Thursday: Down 37.28 points.
Friday: Up 61.95 points.
Saturday: Holiday or other weird event!

For the Week...

The Dow industrials were down 260.8 points or 2.1%.
The Nasdaq composite was down 52.9 points or 1.9%.
The S&P 500 index was down 23.13 points or 1.7%.

Year to Date...

Dow Industrials
     2.1% down from the high of 12,391.29 on 02/18/2011.
     4.8% up from the low of 11,573.87 on 01/10/2011.
Nasdaq
     2.1% down from the high of 2,840.51 on 02/18/2011.
     4.4% up from the low of 2,663.64 on 01/04/2011.
S&P 500
     1.8% down from the high of 1,344.07 on 02/18/2011.
     5.0% up from the low of 1,257.62 on 01/03/2011.

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
Personal income & consumption8:30 MC+Measures sources of income to predict future demand.
Personal consumption expenditures8:30 MC+Covers durables, non-durables, and services.
Chicago purchasing managers index9:45 MBMonitors regional manufacturing activity.
Construction spending10:00 TDCovers residential/non-residential/public spending on new construction.
Auto & truck sales3:00? TC-Monthly sales of domestically produced vehicles.
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.
Productivity & costs8:30 ThD+Cost of producing a unit of output.
4 Employment reports8:30 FANonfarm payrolls, unemployment rate, avg workweek, hourly earnings.

Options Expiration

No options expire this week.

Top

Swing and Position Traders: Chart Pattern Indicator

On 02/25/2011, the chart pattern indicator (CPI) had:

1 bearish patterns,
9 bullish patterns,
189 patterns waiting for breakout.
The CPI signal is 90.0%, which is bullish (>= 65%).

The chart pattern indicator is bullish with 2 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  12,024  12,077  12,114  12,167  12,204 
Weekly  11,761  11,946  12,168  12,352  12,574 
Monthly  11,520  11,825  12,108  12,413  12,697 
S&P 500 (^GSPC): Daily  1,303  1,311  1,316  1,325  1,329 
Weekly  1,273  1,296  1,318  1,341  1,362 
Monthly  1,244  1,282  1,313  1,351  1,382 
Nasdaq (^IXIC): Daily  2,742  2,762  2,771  2,791  2,801 
Weekly  2,662  2,722  2,765  2,824  2,868 
Monthly  2,603  2,692  2,766  2,855  2,930 
  • 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.
 3 months up 20.5%  Expect a reversal soon.
 S & P 500 (^GSPC) 1 week down 30.8%  The trend may continue.
 3 months up 29.1%  The trend may continue.
 Nasdaq composite (^IXIC) 1 week down 33.6%  The trend may continue.
 3 months up 30.1%  The trend may continue.

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
25Triangle, symmetrical
18Pipe bottom
15Broadening top
14Rising wedge
11Rectangle top
10Triangle, ascending
10Broadening wedge, descending
10Pipe top
8Target price
6Falling 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. Oilfield Svcs/Equipment2. Oilfield Svcs/Equipment
3. Semiconductor Cap Equip.3. Semiconductor Cap Equip.
4. Petroleum (Integrated)4. Petroleum (Integrated)
5. Petroleum (Producing)5. Furn/Home Furnishings
48. Household Products48. Electric Utility (Central)
49. Electric Utility (East)49. Electric Utility (East)
50. Electric Utility (Central)50. Household Products
51. Electric Utility (West)51. Electric Utility (West)
52. Short ETFs52. Short ETFs

-- Thomas Bulkowski

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Thursday 2/24/11. The Kacher-Morales Setup

Picture of a flower.

My publisher says that we sold the Japanese translation rights to my Encyclopedia of Candlestick Charts book. That means we have sold 15 language translation licenses to my books.

$ $ $

The December 2010 issue of Active Trader magazine had an article by Kacher and Morales titled, "Trading gaps with the most potential," that discussed a trading setup to take advantage of gaps on the price chart. Every time I test an idea from a magazine, I hope that it will prove to be an exciting setup, one that works often and has a high probability of winning, making lots of money. I haven't found one that meets those criteria or even comes that close.

This is one such setup. Here are the results.

Average gain ranges between 1.2% and 3.1%
Win/loss ratio ranges between 28% and 32%
Average drawdown: 5.5% to 8.9%
Hold time: 29 to 43 days

I ran 16 different tests and that's what I found. In other words, I was disappointed. I don't like that you're losing two out of every three trades and the 3.1% gain includes stocks priced below $5. That's not a range that most would call "quality" but after a stock splits, the historical price can be that low. Insteel Industries in that test made $78,000, boosting the performance of the group when it climbed from 73 cents to $6.45 in 2004. Removing that stock and the average gain drops from 3.1% to 2.6%, and that test includes 1,504 trades.

Here are my interpretations of their trading rules:

  1. Find up gaps in stocks that are at least 75% of the 40-day average true range (ATR)
  2. Volume on the day price gaps higher must be at least 1.5 times the 50-day average.
  3. The stock must be trending upward, or breaking out of a consolidation area several days or weeks long.
  4. "The up gap should occur in a constructive, fundamentally sound, leading stock."
  5. Sell if price closes below the low posted on the day price gaps up.
  6. Violates (used below) is defined as price closing below the simple moving average (SMA) and the coming day(s) sees price make a lower low than that posted when price closed below the SMA. This rule applies to both the 10-day and 50-day SMA.
  7. Sell if price violates a 10-day SMA providing the trade has lasted at least 7 weeks. If less than 7 weeks, look for a violation of the 50-day SMA.
  8. Exceptions to the prior selling rule are: The stock is in the semiconductor, retail, or commodities (like oil, precious metals) industries or it has a market cap greater than $5 billion.
  9. If those exceptions apply, use a violation of the 50-day SMA to sell.

I did not test the breakout from consolidation areas as outlined in step 3. I used linear regression of the price trend leading to the gap as a trend determiner, from 5 days to 40.

I have no idea how you'd test step 4 unless you're William O'Neil and have the resources of his newspaper. I didn't bother with the step.

For step 8, I excluded 13 industries along the lines suggested, such as integrated petroleum, aluminum, natural gas distributors, and so on. By "excluded," I mean they use the 50-day SMA instead of the 10-day. I also didn't "exclude" large cap stocks.

Since the authors didn't provide test results, I had nothing to compare against. I could have coded the setup wrong, and as described above, my test did not replicate theirs anyway.

Having said all that, I used 557 stocks in the test with daily price data from March 12, 2001 to October 1, 2010. Those two end points leave the S&P 500 index near the same price.

I didn't change their parameters. Rather, I deleted their rules to see what effect they would have. Having volume or not didn't change the results much. The rule to wait for price to make a lower low after a violation of the moving average sounded like a good idea but it made results worse. Go figure. That's step 6. I tested just selling the day after price closed below the moving average. I found that when price trended downward leading to the start of the gap, it produced better results. After playing with the obvious rule deletions, and seeing that performance didn't change much, I decided to get back to writing my book. That's another two days of my life I can't get back...

-- Thomas Bulkowski

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Tuesday 2/22/11. Market Monday on Tuesday: The Week Ahead

My Prediction

Picture of the Nasdaq on the daily scale.

The picture of the Nasdaq appears on the daily scale, and it barely fits the frame, starting with the September low.

The red line represents an Elliott wave interpretation. I'm not saying that it's correct, because correct wave counting is a mystery for most people (I think), including me. Even the experts can't agree, and I don't include myself in the expert category on Elliott.

Anyway, you can see wave A making a strong move up. It's a long one. Wave C is shorter that A. According to Elliott, it's never the shortest of the actionary waves (A, C, E).

That suggests wave E is going to be a short one. If that's the case, it doesn't mean the uptrend is over. Each wave can be extended by another rise-retrace pair. That's why it's so difficult to use Elliott wave to predict anything. The waves can extend willy-nilly, confounding the counters.

My take-away from this picture is that the up-move is getting tired. I would expect a retrace soon, but these moves can continue for longer than anyone expects. Thus, although I'm cautious, I'm still bullish.

And yes, I should have used numbers instead of letters, but letters appear on the charts better than do numbers (the number one looks like another price bar, for example).

Top

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 5.07 points.
Tuesday: Down 41.55 points.
Wednesday: Up 61.53 points.
Thursday: Up 29.97 points.
Friday: Up 73.11 points.

For the Week...

The Dow industrials were up 117.99 points or 1.0%.
The Nasdaq composite was up 24.51 points or 0.9%.
The S&P 500 index was up 13.86 points or 1.0%.

Year to Date...

Dow Industrials
     0.0% down from the high of 12,391.29 on 02/18/2011.
     7.1% up from the low of 11,573.87 on 01/10/2011.
Nasdaq
     0.2% down from the high of 2,840.51 on 02/18/2011.
     6.4% up from the low of 2,663.64 on 01/04/2011.
S&P 500
     0.1% down from the high of 1,344.07 on 02/18/2011.
     6.8% up from the low of 1,257.62 on 01/03/2011.

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
Consumer confidence10:00 TB-Surveys 5,000 households for trends.
Existing home sales10:00 WCCounts sales of used homes.
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.
New home sales10:00 ThC+Shows sales of single-family homes.
Gross domestic product8:30 FBMeasures economic activity; GDP deflator measures inflation.
Michigan sentiment9:55 FB-Consumer sentiment: Measures strength of consumer spending.

Options Expiration

No options expire this week.

Top

Swing and Position Traders: Chart Pattern Indicator

As of 02/18/2011, the CPI had:

8 bearish patterns,
46 bullish patterns,
345 patterns waiting for breakout.
The CPI signal is 85.2%, 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  12,333  12,362  12,421  12,450 
Weekly  12,127  12,259  12,325  12,457  12,523 
Monthly  11,468  11,930  12,160  12,622  12,853 
S&P 500 (^GSPC): Daily  1,336  1,339  1,342  1,345  1,348 
Weekly  1,318  1,330  1,337  1,350  1,357 
Monthly  1,247  1,295  1,319  1,368  1,392 
Nasdaq (^IXIC): Daily  2,816  2,825  2,833  2,842  2,850 
Weekly  2,783  2,808  2,824  2,850  2,866 
Monthly  2,620  2,727  2,784  2,891  2,947 
  • 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) 3 weeks up 22.1%  Expect a reversal soon.
 3 months up 20.5%  Expect a reversal soon.
 S & P 500 (^GSPC) 3 weeks up 19.7%  Expect a reversal soon.
 3 months up 29.1%  The trend may continue.
 Nasdaq composite (^IXIC) 3 weeks up 18.5%  Expect a reversal soon.
 3 months up 30.1%  The trend may continue.

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
28Pipe bottom
26Triangle, symmetrical
16Rising wedge
11Broadening top
11Rectangle top
10Broadening wedge, descending
9Triangle, ascending
9Target price
7Falling wedge
6Head-and-shoulders bottom

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. Oilfield Svcs/Equipment2. Semiconductor Cap Equip.
3. Semiconductor Cap Equip.3. Oilfield Svcs/Equipment
4. Petroleum (Integrated)4. Building Materials
5. Furn/Home Furnishings5. Internet
48. Electric Utility (Central)48. Electric Utility (Central)
49. Electric Utility (East)49. Electric Utility (East)
50. Household Products50. Household Products
51. Electric Utility (West)51. Electric Utility (West)
52. Short ETFs52. Short ETFs

-- Thomas Bulkowski

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Sunday 2/20/11. Horror story request!

Tomorrow, Monday, is a market holiday.

If you've ever blown out your account (large loss) or made a big win, or even a trade you're especially proud of, then I'd like to hear about it. Tell me your story. I'm looking for stories to include in my new book, anecdotes that will spice up an otherwise boring read. Perhaps you can help. If so, then send the details to me at the below address. I make no guarantees and often change the names to assure anonymity.

-- Thomas Bulkowski

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Thursday 2/17/11. Moving Average Words

Picture of flowers.

I released the Bierovic setup at the link. Testing shows that if you ignore the entry conditions, you get better performance. That suggests incomplete testing on his part but I can understand. I'm sure he did the best he could and didn't have the luxury of pumping over 1,000 ascending triangles through the setup. Nevertheless, testing does bring up something that I noticed when researching candlesticks and chart patterns.

Don't assume that price moving above a moving average is a good thing in your performance tests. My testing of the Bierovic setup suggests you get better performance if price is BELOW the moving average than above it. I found that's also true of candlestick patterns as well when used in conjunction with a 50-day moving average.

I do know that a longer term moving average (like a 200-day) will help keep you out of a bear market, so it can be valuable to include in tests if bear markets are of concern.

-- Thomas Bulkowski

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Tuesday 2/15/10. The Bierovic Setup

Picture of flowers.

The September 2002 Active Trader magazine article titled, "The ups and downs of triangles," by Thomas Bierovic, discusses trading setups for ascending and descending triangles.

Here are the rules he used for ascending triangles with upward breakouts.

  1. The top of the triangle must be above the 13-day and 55-day EMAs (exponential moving averages).
  2. From the start of the triangle to the day before the breakout must be at least 15 price bars.
  3. Place a buy stop ten cents above the top trendline (triangle top) and buy providing the buy price is above the 13 and 55-day EMAs.
  4. Set an initial stop a dime below the low the day before the breakout. Note that this could be higher or lower than the breakout day's low, but he doesn't address this.
  5. Raise the stop to breakeven after a close above the top of the triangle plus 50% of its height.
  6. "After a new highest close since entry, raise the stop to below the most recent swing low (if there is one above the breakeven stop." A swing low is a low surrounded by higher lows on each side.
  7. After price reaches the top of the triangle plus its height, place a trailing stop ten cents below the prior bar's low.

How well does the setup work? The average gain trading 100 shares for each trade and $10 one-way commissions is 0.8% and it wins 60% of the time. If you take the trades his setup says not to, and use his stop rules, you make more money and win more often: 1.7% and 63%, respectively. Sigh. I hope to release my study of this tomorrow (Tuesday) in the trading setup section of this website.

-- Thomas Bulkowski

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Monday 2/14/11. Market Monday: The Week Ahead

My Prediction

Picture of the Dow utilities on the daily scale.

I show the Dow utilities because it's the only one with an interesting pattern that I haven't talked about recently.

The index shows a small ascending triangle outlined in red. Note that as a reversal pattern, there is not much of anything to reverse, given the upward breakout. Nevertheless, the congestion region with an upward breakout (price closes above the red line two days ago) suggests a continuation of the upward move.

That's not a guarantee, of course. This could just be a 2B top where price reaches the level of an old high and then reverses. The reversal may not see price drop much, but it's a reliable signal of weakness. It occurs when price approaches, meets, or rises slightly above a prior peak. When it stalls, it often reverses and the stock drops.

Since the index has risen so much from the November low, one would expect a retrace of the up move and it occurred in late January, on that tall black candle about two weeks ago. Whether that will suffice as a sufficient drop remains to be seen. My bet is that the average will continue rising.

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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 69.48 points.
Tuesday: Up 71.52 points.
Wednesday: Up 6.74 points.
Thursday: Down 10.6 points.
Friday: Up 43.97 points.

For the Week...

The Dow industrials were up 181.11 points or 1.5%.
The Nasdaq composite was up 40.14 points or 1.4%.
The S&P 500 index was up 18.28 points or 1.4%.

Year to Date...

Dow Industrials
     0.1% down from the high of 12,285.94 on 02/11/2011.
     6.0% up from the low of 11,573.87 on 01/10/2011.
Nasdaq
     0.0% down from the high of 2,810.56 on 02/11/2011.
     5.5% up from the low of 2,663.64 on 01/04/2011.
S&P 500
     0.1% down from the high of 1,330.79 on 02/11/2011.
     5.7% up from the low of 1,257.62 on 01/03/2011.

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
Retail sales8:30 TA-Reports total retail sales (not services). Are people spending?
International trade8:30 TC+Import/export prices, trade balance. US economy vs others.
Business inventories10:00 TC-Reports manufacturing, wholesale, retail inventories.
Housing starts8:30 WB-Number of homes beginning construction.
Building permits8:30 WB-Measures building permits for new construction.
Producer price index8:30 WB-Measures wholesale goods cost. An indication of future inflation.
Industrial production9:15 WB-Production of utilities, mines, and manufacturers.
Capacity utilization9:15 WB-Gauges economic activity, hints of inflation.
Crude inventories10:30 W?My guess: Measures oil inventory.
FOMC Minutes2:00 W?Minutes of the prior Federal Reserve meeting.
Consumer price index8:30 ThB+Inflation report. Measures cost of goods and services.
Initial jobless claims8:30 ThC+Counts people filing for state unemployment benefits.
Leading indicators10:00 ThD-Summary of already known reports.

Options Expiration

The following is courtesy of the Options Industry Council.

OptionDate
VIX expiresWednesday
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

As of 02/11/2011, the CPI had:

6 bearish patterns,
79 bullish patterns,
415 patterns waiting for breakout.
The CPI signal is 92.9%, 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  12,141  12,207  12,247  12,313  12,352 
Weekly  12,024  12,148  12,217  12,342  12,411 
Monthly  11,332  11,803  12,044  12,515  12,756 
S&P 500 (^GSPC): Daily  1,311  1,320  1,325  1,335  1,340 
Weekly  1,305  1,317  1,324  1,336  1,343 
Monthly  1,238  1,284  1,307  1,353  1,376 
Nasdaq (^IXIC): Daily  2,767  2,788  2,799  2,821  2,832 
Weekly  2,746  2,778  2,794  2,826  2,842 
Monthly  2,631  2,720  2,765  2,855  2,900 
  • 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 31.3%  The trend may continue.
 3 months up 20.5%  Expect a reversal soon.
 S & P 500 (^GSPC) 2 weeks up 29.9%  The trend may continue.
 3 months up 29.1%  The trend may continue.
 Nasdaq composite (^IXIC) 2 weeks up 25.9%  The trend may continue.
 3 months up 30.1%  The trend may continue.

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
26Target price
26Triangle, symmetrical
22Pipe bottom
17Rising wedge
11Broadening top
11Rectangle top
8Head-and-shoulders top
8Broadening wedge, descending
6Broadening top, right-angled and descending
6Flag, high and tight

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. Semiconductor Cap Equip.2. Oilfield Svcs/Equipment
3. Oilfield Svcs/Equipment3. Semiconductor Cap Equip.
4. Building Materials4. Internet
5. Internet5. Chemical (Basic)
48. Electric Utility (Central)48. Electric Utility (Central)
49. Electric Utility (East)49. Trucking/Transp. Leasing
50. Household Products50. Household Products
51. Electric Utility (West)51. Electric Utility (West)
52. Short ETFs52. Short ETFs

-- Thomas Bulkowski

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Thursday 2/10/11. Dow Deliberation. What Does it Mean?

Picture of the Dow industrials on the daily scale.

I'm writing this on Wednesday afternoon. Tonight, it's supposed to be the coldest yet this season. I'm having a water pipe bursting party. Bring popcorn.

$ $ $

The Dow industrials has made 7 new highs in a row, which I show numbered 1 and 7 in red. If it makes one more, there's a name for that candlestick pattern and it's called 8 new price lines. A line is a single price bar.

The candle pattern is supposed to be a bearish reversal but it's not. It's a bullish continuation 53% of the time. Since this is such a tall pattern, I measure the reversal rate differently by using a close above/below the last price bar in the series as the reference for a continuation or reversal, respectively.

To put it another way, if this candle worked as claimed, there would be no 10, 12, and 13 new price lines candles, which there are.

The inset on the chart shows a deliberation candlestick, taken from the last three days in the Dow. According to my Encyclopedia of Candlestick Charts book, the candle acts as a bullish continuation pattern 77% of the time. It's supposed to be a bearish reversal. That could come true, given that the Dow is just squeaking out gains from day to day.

What does all of this mean? Sooner or later the new highs will come to an end. It might be a slight pause in the upward trend, but more likely, it will mean the beginning of a retrace that sees the Dow drop back to support. That could mean a drop to 11,800 to 12,000.

-- Thomas Bulkowski

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Tuesday 2/8/10. The Best Performing Chart Patterns Revisited

Below, I show a table of the best performing chart patterns for upward breakouts (top half) and downward breakouts (bottom half), sorted by the 2 month's performance.

This is the same blog entry as I posted on 1/13 except that I have cataloged over 30,000 samples (10k more than last time, but that includes the bear markets) and the rankings have changed.

Click on the associated link for more information about a chart pattern.

 Pattern: Up Breakouts  1 Month
Gain 
 2 Month
Gain 
 3 Month
Gain 
High and tight flags22%21%21%
Eve & Eve double bottom9%12%13%
Scallop, ascending and inverted11%12%13%
Rectangle Bottom8%11%14%
Adam & Adam double bottom7%10%12%
Adam & Eve double bottom7%10%10%
Eve & Adam double bottom7%10%14%
Falling wedge8%10%9%
Rounded top7%10%14%
Flag8%9%7%
 Pattern: Down Breakouts  1 Month
Loss 
 2 Month
Loss 
 3 Month
Loss 
Complex head-and-shoulders top-8%-10%-10%
Head-and-shoulders top-7%-8%-7%
Diamond top-8%-7%-6%
Diamond bottom-10%-5%-4%
Scallop, descending-6%-5%-4%
Adam & Adam double top-6%-4%-3%
Right-angled and descending broadening formation-5%-4%0%
Rounded top-6%-4%-4%
Scallop, descending and inverted-4%-4%-4%
Triangle, descending-5%-4%-3%

-- Thomas Bulkowski

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Monday 2/7/11. Market Monday: The Week Ahead

My Prediction

Picture of the Dow transports on the daily scale.

A picture of the Dow transports on the daily scale appears, and I chose it because of the diamond bottom chart pattern, shown here outlined in red.

Diamonds are rare, perhaps because they are difficult to find. Essentially you look for a broadening pattern followed by a narrowing one (a symmetrical triangle).

Price should touch the trendlines on each side enough that the trendline doesn't look like it's hanging in space. However, the diamonds are often slanted to one side or the other. Rarely do you see one that reminds you of a baseball diamond as viewed from home plate. The one pictured here, is a good example of a well-shaped diamond bottom.

Which way will the breakout be? Statistics say that the breakout is upward 69% of the time, and an upward breakout is what I expect here. Even if the breakout is downward, a support area upon which the diamond rests should temper any 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: Up 68.23 points.
Tuesday: Up 148.23 points.
Wednesday: Up 1.81 points.
Thursday: Up 20.29 points.
Friday: Up 29.89 points.

For the Week...

The Dow industrials were up 268.45 points or 2.3%.
The Nasdaq composite was up 82.41 points or 3.1%.
The S&P 500 index was up 34.53 points or 2.7%.

Year to Date...

Dow Industrials
     0.0% down from the high of 12,092.42 on 02/04/2011.
     4.5% up from the low of 11,573.87 on 01/10/2011.
Nasdaq
     0.0% down from the high of 2,769.70 on 02/04/2011.
     4.0% up from the low of 2,663.64 on 01/04/2011.
S&P 500
     0.0% down from the high of 1,311.00 on 02/04/2011.
     4.2% up from the low of 1,257.62 on 01/03/2011.

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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
Consumer credit3:00 MD-Measures auto, credit card and other debt.
Crude inventories10:30 W?My guess: Measures oil inventory.
Initial jobless claims8:30 ThC+Counts people filing for state unemployment benefits.
Wholesale inventories10:00 ThD-Wholesale sales and inventory statistics.
Treasury budget2:00 ThDTracks budget deficit. Important in April (tax filing).
Trade balance8:30 FC+Signals balance of exports & imports.
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 02/04/2011, the CPI had:

13 bearish patterns,
35 bullish patterns,
343 patterns waiting for breakout.
The CPI signal is 72.9%, 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  12,003  12,048  12,070  12,114  12,137 
Weekly  11,726  11,909  12,001  12,184  12,275 
Monthly  11,343  11,718  11,905  12,280  12,467 
S&P 500 (^GSPC): Daily  1,299  1,305  1,308  1,314  1,317 
Weekly  1,265  1,288  1,299  1,322  1,334 
Monthly  1,235  1,273  1,292  1,330  1,349 
Nasdaq (^IXIC): Daily  2,740  2,755  2,762  2,777  2,784 
Weekly  2,646  2,708  2,739  2,800  2,831 
Monthly  2,609  2,689  2,729  2,810  2,850 
  • 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 43.8%  Expect a random direction.
 3 months up 20.5%  Expect a reversal soon.
 S & P 500 (^GSPC) 1 week up 41.4%  Expect a random direction.
 3 months up 29.1%  The trend may continue.
 Nasdaq composite (^IXIC) 1 week up 40.0%  Expect a random direction.
 3 months up 30.1%  The trend may continue.

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
24Pipe bottom
22Triangle, symmetrical
21Target price
18Head-and-shoulders top
13Rising wedge
13Broadening top
11Rectangle top
10Triangle, ascending
8Broadening wedge, descending
7Triple top

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. Oilfield Svcs/Equipment2. Internet
3. Semiconductor Cap Equip.3. Oilfield Svcs/Equipment
4. Internet4. Chemical (Diversified)
5. Chemical (Basic)5. Petroleum (Integrated)
48. Electric Utility (Central)48. Alternate Energy
49. Trucking/Transp. Leasing49. Household Products
50. Household Products50. Trucking/Transp. Leasing
51. Electric Utility (West)51. Cement and Aggregates
52. Short ETFs52. Short ETFs

-- Thomas Bulkowski

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Thursday 2/3/11. What's Up with Portfolio Allocation?

Picture of a flower.

Roger, via email, asked one of those penetrating questions that caused me to pause for a moment before answering. In effect, he asked how many stocks should you hold in a portfolio?

I read an article titled, "The basics of managing money" by Mark Vakkur in Technical Analysis of Stocks & Commodities magazine, September 1997 issue that said to achieve 85% diversification, you should hold 7 to 8 stocks.

In many other books, I've read that 10 should be the upper limit. That's one I followed for years until the 2007-2009 bear market. Then I started to diversify more. I reasoned that if mutual funds can hold hundreds of stocks then why can't I manage 30...or 20?

As I write this, I own 27 stocks, 1 ETF, and cash. The largest holding represents 11% of my portfolio, and it's an electric utility. It's less than $2 away from its sell target, and I'm collecting a 5% dividend while I wait for the upside profit target.

To answer Roger's question, I think it's an individual thing. How many stocks are you comfortable managing? If you own 5, then that's 20% allocation per stock, not including cash.

You might want to organize your portfolio according to the style of trading you do. Buy and hold traders will want a large number of stocks so any one disaster won't sink the ship.

Day traders will still want to own a core portfolio of stocks and day trade others. For swing and position traders, a blend of those two might work well.

Keep an eye on the allocation percentage per stock. You don't want to build a position too large in relation to the other securities in your portfolio. As you build your portfolio, pull from several industries. A quick look at my holdings shows that I own 10 to 15 industries, so I'm diversified that way, too. And I own large (a few), mid (a few more) and small (emphasis on these) caps.

The bottom line rule is probably this: Use common sense.

-- Thomas Bulkowski

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Lame picture of my dog.

Tuesday 2/1/11. Tutorial Tuesday: What You Don't Know About Stop Placement

Question: After buying a stock, how close should you put the stop?

Answer:

  • If you place the stop 2 cents below the current low, you will be stopped out almost two-thirds of the time.
  • Place the stop 2 cents below yesterday's low and the stop out rate drops to 41%.
  • Use the day before that, and you'll be stopped out once every three trades, on average.
  • You'll be stopped out sometime during the coming month almost half the time if the stop is closer than 4% below the breakout price.
  • Place the stop no closer than 8% away and it will protect you 75% of the time.

Sound interesting? The above list is from a research study I did on stop placement. Click on the link for the gory details.

-- 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.