Subscribe to RSS feeds Bulkowski Blog via RSS

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

Support this site! Clicking the links (below) takes you to Amazon.com. If you buy ANYTHING, they pay for the referral.

Picture of the head's law.
Kindle
Paperback
Nook
Chart Patterns: After the Buy
Getting Started in Chart Patterns, Second Edition book.
Trading Basics: Evolution of a Trader book.
Fundamental Analysis and Position Trading: Evolution of a Trader book.
Swing and Day Trading: Evolution of a Trader book.
Visual Guide to Chart Patterns book.
Encyclopedia of Chart Patterns 2nd Edition book.
Bulkowski's Blog: ThePatternSite.com
Class Elliott Wave Fundamentals Psychology Quiz Research Setups Software Tutorials More...
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.

January 2010 Headlines


Archives


Thursday 1/28/10. Is Down Move Half Over?

Pablo sent me an interesting email today in the form of a question. Are chart patterns in any given stock more reliable than in other stocks? The answer is, of course, I have no idea! But I am going to enjoy finding out.

# # #

Picture of the Dow industrials on the daily scale.

I have been working on measured move up chart patterns on the weekly scale in 10-baggers (stocks that rise by 10 times within 5 years), as part of my new book. Every chart I look at, I see only measured moves. And that includes the one to the right.

The theory behind a measured move is that the first leg will equal the second leg. On the chart, that means the move from AB (the first leg down) will approximate the decline of CD (the second leg down) in both price and time. The reality is that the second leg (CD) is longer than the first one (on a dollar basis) between 35% and 39% of the time. On the time scale, the second leg has a longer duration than the first leg about half (53%) the time.

That means if you compute the move from A (the turn at the top) to B (the lowest low found between BC) and subtract that height starting from the highest high found between BC, you will hit the target between 35% and 39% of the time.

The chart shows the Dow industrials on the daily scale. To the right of the red line is what I expect will happen. It's a guess. The horizontal blue line coincides not only with the end of the ABCD measured move down but with support in the form of a prior valley.

The last few days have made me nervous about the rebound that I expected in the markets. I hoped that we would see a more robust jump in price instead of hovering around 0. That tells me the market is going to continue lower. All it needs is a little push from some important company failing to make their whisper number (which is an earnings number that traders expect). If that happens, then the market will likely drop 100 points, maybe more, in one session.

Of course, I could be wrong about all of this. A good earnings report might lift the market, but positive comments from the FED today (Wednesday, as I write this) failed to buoy stocks much (up 42 points). If good news doesn't raise the market, then look out below!

-- Thomas Bulkowski

Top


Tuesday 1/26/10. Tutorial Tuesday: On Partial Rises, Declines, Throwbacks and Pullbacks

Picture of a partial rise.

Picture of a partial decline.

The two images are almost self explanatory, but if you need more information, click on the link to partial rises or partial declines.

Traders see these patterns after broadening tops and bottoms, rectangles (tops and bottoms), and even in some triangles. When they occur, they predict the breakout direction. Partial rises predict an immediate downward breakout and a partial decline means an upward breakout.

Picture of a throwback.

Picture of a pullback.

These two images are of throwbacks and pullbacks. Throwbacks occur after an upward breakout and pullbacks happen after a downward breakout. Just when you think price is going against you, it turns around and resumes the original breakout direction.

If you are a nimble trader, you can place an order to enter a trade at the breakout price and exit within a few days before the pullback or throwback occurs, capturing the initial move before the reversal occurs. In all chart patterns, throwbacks and pullbacks occur 53% and 56% of the time, respectively, based on over 10,000 chart patterns.

The reason I bring up all of this is from an email I received several months ago. I don't remember who sent it, but thanks for the idea. He asked the question, does a throwback or pullback occur more often after a partial decline or partial rise? The short answer is no.

I scanned all rectangles and broadening tops and bottoms and found 1,831 examples of those patterns. The following table lists how often the anomalies occur in the samples.

Partial rise28%
Partial decline24%
Throwback24%
Pullback32%

When I add throwbacks and pullbacks without partial rises and declines, I get the following.

Throwback and no partial rise26%
Throwback and no partial decline21%
Pullback and no partial rise13%
Pullback and no partial decline21%

The percentages drop, just as you would expect since the test excludes patterns with partial rises and declines.

Finally, I add partial rises and declines into the picture to get the following.

Throwback and partial rise5%
Throwback and partial decline11%
Pullback and partial rise10%
Pullback and partial decline3%

The table says that there are substantially fewer partial rises and declines that lead to throwbacks and pullbacks. So that's the answer. It's less likely that a throwback or pullback will occur after a partial rise or decline.

-- Thomas Bulkowski

Top


Monday 01/25/2010. 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.

Monday: Holiday!
Tuesday: Up 115.78 points.
Wednesday: Down 122.28 points. Building permits were much better than expected, housing starts were lower and the produce price index climbed.
Thursday: Down 213.27 points. Jobless claims rose, leading indicators climbed and crude inventories dropped.
Friday: Down 216.9 points.

For the week...

The Dow industrials were down 436.67 points or 4.1%.
The Nasdaq composite was down 82.7 points or 3.6%.
The S&P 500 index was down 44.27 points or 3.9%.

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
Existing home sales10:00 MC+85Counts sales of used homes.
Consumer confidence10:00 TB--2Surveys 5,000 households for trends.
New home sales10:00 WC++2Shows sales of single-family homes.
Crude inventories10:30 W?-122My guess: Measures oil inventory.
FOMC Rate decision2:15 W?-11The Federal Reserves reports on interest rate changes.
Initial jobless claims8:30 ThC+-213Counts people filing for state unemployment benefits.
Durable goods orders8:30 ThB+54Measures orders, shipments of goods with lifespans >3 years.
Gross domestic product8:30 FB+51Measures economic activity; GDP deflator measures inflation.
Chicago purchasing managers index9:45 FB+3Monitors regional manufacturing activity.

Options Expiration

No options expire this week.

CPI: Chart Pattern Indicator

As of 01/22/2010, the CPI had:

62 bearish patterns,
1 bullish patterns,
132 patterns waiting for breakout.
The CPI signal is 1.6%, 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 either underway or should be starting soon. 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. Coal1. Coal
2. Toiletries/Cosmetics2. Apparel
3. Chemical (Specialty)3. Insurance (Life)
4. Internet4. Toiletries/Cosmetics
5. Air Transport5. Long ETFs
48. Securities Brokerage48. Trucking/Transp. Leasing
49. Electric Utility (East)49. Securities Brokerage
50. Cement and Aggregates50. Electric Utility (East)
51. Alternate Energy51. Alternate Energy
52. Short ETFs52. Short ETFs

My Prediction

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

The last three trading days certainly took me by surprise, but this week is a new beginning. I expect a recovery from the 4% decline, as the red lines show.

I see support below where price is now, denoted on the chart of the S&P 500 index by the blue line. The chart is on the daily log scale, by the way.

The Federal Reserve will tell us late Wednesday that the sky still is not falling, but it was a close thing. If politics come into play they may say something about grabbing money from banks. I don't think that will happen. President Obama has jumped upon that train and derailed the markets as a result. I don't expect the Fed to raise interest rates, but if they do, then look for the Dow industrials to drop maybe another 200 points. I expect the day to be quiet until they announce and then the market should rise.

If I am wrong and sellers overwhelm the markets, look for the S&P to drop to the green line on the chart, stopping at about 1050 where it intersects the trendline and should find support. That would return it to near the launch price (A), at 1030.

-- Thomas Bulkowski

Top


Thursday 1/21/10. Mechanical RSI Trading System

Each day, I update the test portfolios that appear on the upper right of each page on this website. One of the portfolios, the RSI has a good reputation of knowing when to buy, but not when to sell and the draw down can be huge.

Active Trader magazine, in their February 2010 issue, discuss an article titled, "RSI scale-out system," by Volker Knapp It's similar to my test portfolio but it scales out of trades. Here are the rules.

  1. Long side only.
  2. Buy at tomorrow's open when the 14 period RSI goes below 30.
  3. Exit 25% of the position at tomorrow's open each time the 14 period RSI increases by 15 points, namely 45, 60, 75, and 90.
  4. Set a stop loss for the entire position if price falls below the entry price by 5 times the 20-day average true range (ATR).
  5. Sell the entire position if it is held 300 days without any sell activity.

For their tests, they used these guidelines on a portfolio of 17 stocks from Nov 1999 to Oct 2009:

  • Begin with a $100,000 portfolio
  • Allocate 20% per position
  • Commissions are $0.01 per share and 0.05% slippage per trade.

They had 444 trades that made a net profit of $75,904 or 75.9% with a max draw down of 21%. The win/loss ratio was 70% with a 9.2% average profit. The average winning trade made 19.5% and the average losing trade lost 14.9%.

They mention that no trade hit the 90 RSI reading and say that most exits are time based. My test portfolio rarely hits 80 (4 times in 2 years in over 100 trades). A top end of 75 might work better as the last exit instead of 90. My feeling is that entering when the RSI is climbing above 30 from below would be a better method than when it's declining below 30. The RSI can remain below the 30 threshold for months and the stock keeps declining. On the last exit, at 75 or 90 or whatever value you choose, having the RSI dropping down from above tends to help avoid exiting too soon as price climbs.

-- Thomas Bulkowski

Top


Tuesday 01/19/2010. Market Monday on Tuesday: The Week Ahead

A Brief Look Back

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

Monday: Up 45.8 points.
Tuesday: Down 36.73 points. The trade balance was slightly worse than expected.
Wednesday: Up 53.51 points. The treasury budget hit the market forecast.
Thursday: Up 29.78 points. Initial jobless claims climbed but continuing claims dropped.
Friday: Down 100.9 points. The consumer price index was in line with expectations.

For the week...

The Dow industrials were down 8.54 points or 0.1%.
The Nasdaq composite was down 29.18 points or 1.3%.
The S&P 500 index was down 8.95 points or 0.8%.

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
Building permits8:30 WB--11Measures building permits for new construction.
Consumer price index8:30 WB+-11Inflation report. Measures cost of goods and services.
Housing starts8:30 WB--11Number of homes beginning construction.
Producer price index8:30 WB--49Measures wholesale goods cost. An indication of future inflation.
Crude inventories10:30 W?+54My guess: Measures oil inventory.
Initial jobless claims8:30 ThC++30Counts people filing for state unemployment benefits.
Leading indicators10:00 ThD--133Summary of already known reports.

Options Expiration

VIX and RVX expire on Wednesday.

CPI: Chart Pattern Indicator

As of 01/15/2010, the CPI had:

41 bearish patterns,
8 bullish patterns,
335 patterns waiting for breakout.
The CPI signal is 16.3%, which is bearish (less than 35%).

The chart pattern indicator is bearish 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.

Other

Earnings season is either underway or should be starting soon. 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. Coal1. Coal
2. Apparel2. Apparel
3. Insurance (Life)3. Insurance (Life)
4. Toiletries/Cosmetics4. Long ETFs
5. Long ETFs5. Chemical (Specialty)
48. Trucking/Transp. Leasing48. Household Products
49. Securities Brokerage49. Alternate Energy
50. Electric Utility (East)50. Trucking/Transp. Leasing
51. Alternate Energy51. Electric Utility (East)
52. Short ETFs52. Short ETFs

My Prediction

Picture of Dow Industrials (^DJI) on the daily scale.

The Dow industrials, pictured on the right, seems to be following a rising channel, which I show as two parallel blue lines.

The day after the Martin Luther King jr. holiday, price shows a slight tendency to close higher only 46% of the time. With Friday seeing the Dow drop 100 points, I expect price to rebound on Tuesday, but not to any great extent.

The remainder of the week should be uneventful, based on the economic reports. However, earnings season is starting up, so maybe a few companies can create some enthusiasm and make it a fun ride.

-- Thomas Bulkowski

 

Top


Thursday 1/14/10. Are You Losing Money? Stop Trading!

Picture of Pioneer Drilling (PDC) on the daily scale.

In 2007, I came to the conclusion that the type of trading I was doing wasn't working as well as other techniques, so I decided to change. That was strange since I made over 22% in 2006, handily beating the closest average, the Dow industrials which had a gain of 16.3%. I sold the stock (Michaels Stores was taken private) that had powered my results in prior years, so I started looking for replacements.

The trade in Pioneer Drilling (PDC) shows the type of behavior I was seeing in some of my trades.

I bought the stock as it broke out upward from the congestion zone, but price collapsed. Soon, it was clear that it had reversed and broken out downward instead, so I sold the stock, taking a loss.

I should have recognized the potential for price to move lower because it often takes the shape of a measured move down chart pattern. I show that pattern beginning at A, dropping to B, correcting to C, and finishing at D. That's hindsight, of course, and hindsight is always 20-20.

As it happens from time to time, I sold just days before price resumed its upward move. If I held on, I could have doubled my money, as the chart shows. In other words, this trade tells me that a longer hold time would have been rewarding.

As part of your year-end review, look at your entry and exit timing. If you find you are entering early or late, then make changes. If you are exiting early (most likely) or late, then make changes.

For me, the answer was to focus on fundamentals, a return to the way I started my investing career. By stopping trading and focusing on timing the exit, coupled with a market that has rewarded holding, my results improved. I expect to double or triple my money within 2 to 3 years, mostly by holding what I own now. I will trade from time to time, especially when opportunities present themselves (like an inverted dead-cat bounce), but I can make more money by ignoring the weekly ups and downs and not get shaken out of trades like PDC illustrated here.

With your trades, ask yourself if you held longer, would you have made more money? The answer is probably yes. One solution is to use a higher time scale to exit. If you're a day trader on the 1-minute scale, exit using the 5-minute scale. If you're a position trader using the daily charts, then switch to the weekly scale on the exit.

-- Thomas Bulkowski

Top


Tuesday 1/12/10. Tutorial Tuesday: Using Mirrors for Price Prediction

Picture of Boeing on the weekly scale.

Imagine you own shares of Boeing, pictured on the weekly scale, to the left of the vertical yellow line. How can you predict where the stock will turn in the future?

The answer is to use price mirrors. This is just a fancy and shorter way of saying support and resistance.

Price peaks at A, drops down and then rises to form a second top at A, on the right side of the yellow line. Peak A is mirrored across the yellow line not in time but in price. In other words, the price at the left peak A is similar to that on the right peak. Of course, many of you will recognize the twin A peaks as a double top. It becomes an actual, valid double top when price closes below the low between the two peaks.

Look at the twin peaks B. Both are at a similar price level, with the B on the right a bit below that of the left peak. The pattern now becomes a complex head-and-shoulders top, one with two heads and two shoulders.

The two C peaks do not have a reflection across the yellow line but they form their own mirrored pair.

Peaks E and D have their mirrors across the yellow line as well.

Now let's look at the valleys. They form the same mirror pairs, don't they? Valleys Z and Z mirror each other in price. The Y on the right of the yellow line is lower than the one on the left. Two Ws appear, forming a small mirror, and the pair reflect across the yellow line by another pair of Ws on the right. Finally, the two Vs also reflect across the yellow line.

If you were to cover up the chart at the yellow line and just flop the left side onto the right, it would appear similar in shape. It would not be exact but similar. Sometimes, even the time between peaks and valleys is similar across some imaginary vertical yellow line.

These types of price mirrors can be a useful tool to help predict where price is going to pause when it begins retracing. Obviously, if the stock continued to climb to the right of the yellow line, we would not be having this discussion.

That also brings up a caution, too. While mirrors can prove not only useful but accurate as well, they have their limitations. For example, look at the left peaks D and C. The Z valley could mark the imaginary yellow line between these two. I show it as a thin, vertical green line. Peak e is mirrored by E. Valley y mirrors at Y. But price continues to rise after the first peak C. Again, mirrors only work when price is ready to reverse. In the second C peak, the stock still had more up-move left.

Mirrors work on all time scales. Just keep in mind that sometimes a peak on the left won't be mirrored by one on the right. In the absence of anything else, mirrors can help you guess how price will move in the future.

-- Thomas Bulkowski

Top


Monday 01/11/2010. Market Monday: The Week Ahead

A Brief Look Back

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

Monday: Up 155.91 points. Bounce from prior trading day loss of 120 points. Construction spending was worse than expected.
Tuesday: Down 11.94 points. Factory orders were robust, much higher than expected.
Wednesday: Up 1.66 points.
Thursday: Up 33.18 points. Initial jobless claims were fewer than expected.
Friday: Up 11.33 points. Inventories climbed, consumer credit shrank, and the unemployment rate remained flat.

For the week...

The Dow industrials were up 190.14 points or 1.8%.
The Nasdaq composite was up 48.02 points or 2.1%.
The S&P 500 index was up 29.88 points or 2.7%.

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
Trade balance8:30 TC++66Signals balance of exports & imports.
Crude inventories10:30 W?+33My guess: Measures oil inventory.
Treasury budget2:00 WD+69Tracks budget deficit. Important in April (tax filing).
FEDs Beige bookWed??Reports on economic conditions.
Initial jobless claims8:30 ThC++33Counts people filing for state unemployment benefits.
Retail sales8:30 ThA-+66Reports total retail sales (not services). Are people spending?
International trade8:30 ThC++66Import/export prices, trade balance. US economy vs others.
Business inventories10:00 ThC-+66Reports manufacturing, wholesale, retail inventories.
Consumer price index8:30 FB+-11Inflation report. Measures cost of goods and services.
Capacity utilization9:15 FB--45Gauges economic activity, hints of inflation.
Industrial production9:15 FB--45Production of utilities, mines, and manufacturers.

Options Expiration

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

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

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

CPI: Chart Pattern Indicator

As of 01/08/2010, the CPI had:

6 bearish patterns,
11 bullish patterns,
166 patterns waiting for breakout.
The CPI signal is 64.7%, which is neutral (between 35% and 65%).

The chart pattern indicator is bullish with 3 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 should be starting soon.

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. Coal1. Coal
2. Apparel2. Internet
3. Insurance (Life)3. Apparel
4. Long ETFs4. Chemical (Specialty)
5. Chemical (Specialty)5. Insurance (Life)
48. Household Products48. Petroleum (Integrated)
49. Alternate Energy49. Electric Utility (East)
50. Trucking/Transp. Leasing50. Trucking/Transp. Leasing
51. Electric Utility (East)51. Alternate Energy
52. Short ETFs52. Short ETFs

My Prediction

Picture of S and P 500 on the daily scale.

I show the S & P 500 index on the daily scale in the associate chart.

Based on the economic reports that are due out this week, I don't expect fireworks. The FEDs beige book comes out on economic conditions but it's probably a lot like the weather. Just look outside your window and you'll know how bad things are.

On Thursday, retail sales come out and that might generate some excitement. I expect good reports from retailers and that's why you see the fourth red line moving up.

The rest of the week I expect the S&P 500 to move horizontally. The recent run from the late December low has been an almost straight-line one. Those can last longer than anyone expects but sooner or later price has to pause. I see that happening, perhaps this week, starting with a small retrace at the start of the week to compensate for the Dow's 190 point gain last week. Then a recovery on retail sales as I mentioned.

-- Thomas Bulkowski

Top


Thursday 1/7/10. Searching for 10-Baggers

Picture of a bee.

The bee picture is from my garden when it was warmer. It's serves as a reminder that beauty lies beneath those snow drifts and cold temperatures.

# # #

In case you haven't heard of a 10-bagger, it's a stock that rises by 10 times or more from its original price, and it does this within 5 years. The time limit is one I impose, so it is arbitrary.

I am finishing a chapter on 10-baggers, and below I share some of my finding with you. Here are the important elements I uncovered in stocks that rise by 10 times. In all cases, the criterion is based on the stock before it begins its move up, not sometime during the rise.

  • Almost half (41%) of 10-baggers take a full 5 years to complete.
  • 55% of the samples had a starting price below $5, but only 2% were below $1.
  • The first year is when 10-baggers rise most.
  • 77% were small caps. Market cap is shares outstanding times the current stock price.
  • Half the samples had a price to book value below 1.5.
  • Capital spending decreased 59% of the time from the year before the 10-bagger began.
  • 35% of the time, the stocks had price to cash flow below 1.0.
  • 91% of the stocks did not pay dividends.
  • 77% had long term debt.
  • Net profit, P/E ratio, and ROE are almost meaningless when searching for 10-baggers.
  • 53% of the stocks had price to sales ratios below 1.5
  • 51% had return on equity below 12%.
  • In 84% of the samples, the company issued more shares than were outstanding in the prior year.
  • Which industries had the most 10 baggers? Semiconductors (first), home builders (second), internet, and semiconductor capital equipment.

The above analysis used data from 1992 to 2007 on over 1,000 stocks, but few actually contained 10-baggers. The best time to go shopping for 10-baggers is just before the bull market bubble (as in 1998 when 81 ten-baggers appeared), and just as a bear market ends (like now!), such as in 2002 when 72 ten-baggers occurred in the stocks I looked at.

Happy hunting!

-- Thomas Bulkowski

Top


Tuesday 1/5/09. Tutorial Tuesday: The 38% Exit

Picture of Pinnacle West Capital (PNW) on the daily scale.

The home-built program I use to track my stocks allows me to view the allocation of each stock and each industry with the push of a button. When I felt as if Pinnacle West Capital (PNW) was overbought and it was time to sell, I looked at my allocation. I had 19% of my money in the stock. The next closest allocation was 6% in another utility stock. Even after selling a portion of it, I still have 13% wrapped up in the stock. If I need to sell or if the stock hits my next price target (39-40), I know where to go to find the cash.

Anyway, I bought the stock several times and this sale matches a buy I made on August 1, 2008. I entered the stock on an ascending triangle breakout, and received a fill at 33.26. At the time, the stock paid a 6% dividend.

Zoom ahead to December 15, the day before I sold. My reason for selling the stock was for diversification. I wanted the money to buy other stocks I liked and to cut the allocation, as I already discussed. The Wilder RSI (relative strength index) said the stock was in the overbought range, but it can stay that way for months. The commodity channel index (CCI) said sell.

What I really wanted to explain about this trade is the 38% Fibonacci extension. I have written many times about using Fibonacci retraces, 38%, 50%, and 62% of the prior move. In this case, I used an extension of the AB move. Here's how it's done. In this trade, I used the widest points in the broadening top chart pattern. Point A is at a high of 35.48 and the low is at 31.08 for a height of 4.40. Multiply this by 38% and you get 1.67. Add that to A to get the target I show as a green line, at 37.15. Notice how the stock began to turn near the extension level.

The ideal evening star candlestick

Since the stock had moved up in a straight-line run for 1.5 months, I felt that it just might retrace and wanted to capture as much profit as I could. My notes also say a evening star candle appeared (shown in the figure to the right), and price had closed lower two days in a row. Although I suspected then, and still do, that the stock will continue up, I sold a portion of my holdings at 37.59.

I made 13% on the stock but it qualifies as a long term gain. The kicker is, I also collected dividends which pushed up my total return to 21%. How do you spell green? M-O-N-E-Y!

-- Thomas Bulkowski

Top


Monday 01/04/2010. Market Monday: The Week Ahead

A Brief Look Back

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

Monday: Up 26.98 points.
Tuesday: Down 1.67 points. Consumer confidence was up from the prior month but the market expected better.
Wednesday: Up 3.1 points. The Chicago PMI was up more than expected and crude inventories dropped.
Thursday: Down 120.46 points. New and continuing unemployment claims dropped but that didn't stop a sell-off.
Friday: Holiday or other weird event!

For the week...

The Dow industrials were down 92.05 points or 0.9%.
The Nasdaq composite was down 16.54 points or 0.7%.
The S&P 500 index was down 11.38 points or 1.0%.

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
Construction spending10:00 MD+127Covers residential/non-residential/public spending on new construction.
Factory orders10:00 TD++23Durable/non-durable goods orders w/factory inventories.
Auto & truck sales2:00 TC-+127Monthly sales of domestically produced vehicles.
Crude inventories10:30 W/Th??+3My guess: Measures oil inventory.
Initial jobless claims8:30 ThC+-120Counts people filing for state unemployment benefits.
4 Employment reports8:30 FA+23Non farm payrolls, unemployment rate, avg workweek, hourly earnings.
Wholesale inventories10:00 FD-+51Wholesale sales and inventory statistics.
Consumer credit3:00 FD-+1Measures auto, credit card and other debt.

Options Expiration

No options expire this week.

CPI: Chart Pattern Indicator

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

49 bearish patterns,
7 bullish patterns,
487 patterns waiting for breakout.
The CPI signal is 12.5%, which is bearish (<= 35%).

The chart pattern indicator is bearish 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.

Other

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. Coal1. Coal
2. Internet2. Internet
3. Apparel3. Chemical (Specialty)
4. Chemical (Specialty)4. Apparel
5. Insurance (Life)5. Semiconductor Cap Equip.
48. Petroleum (Integrated)48. Securities Brokerage
49. Electric Utility (East)49. Trucking/Transp. Leasing
50. Trucking/Transp. Leasing50. Electric Utility (East)
51. Alternate Energy51. Alternate Energy
52. Short ETFs52. Short ETFs

My Prediction

Picture of the Dow industrials on the daily scale.

After Thursday's big drop, one can assume some type of rebound will occur in the Dow industrials, and I show that in the chart.

This week, I expect a partial decline to form. That happens when price drops but does not come close to the bottom trendline before moving back up and staging an immediate upward breakout. Rectangle tops and bottoms, and the various types of broadening patterns show partial declines and partial rises.

Friday will be the big day because that's when the unemployment report comes out. With holiday hiring, I expect the unemployment rate to continue to decline, but that's just a guess. I think that the market will like the news and send price higher, perhaps rising about the top of a rectangle top chart pattern. I show that as the two horizontal red lines that has mostly contained the Dow for about a month. In other words, the Dow has been range bound.

-- Thomas Bulkowski

Top

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.