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

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Chart Patterns: After the Buy
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Busted
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Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 08/18/2017
21,675 -76.22 -0.4%
9,095 -57.14 -0.6%
738 3.96 0.5%
6,217 -5.38 -0.1%
2,426 -4.46 -0.2%
YTD
9.7%
0.6%
11.9%
15.5%
8.3%
Tom's Targets    Overview: 08/14/2017
22,250 or 21,500 by 09/01/2017
9,700 or 8,900 by 09/01/2017
750 or 710 by 09/01/2017
6,500 or 6,150 by 09/01/2017
2,525 or 2,425 by 09/01/2017

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January 2011 Headlines


Archives


Monday 1/31/11. Market Monday: The Week Ahead

My Prediction

Picture of the Nasdaq composite on the daily scale.

I show a picture of the Nasdaq composite on the daily scale. It shows a double top at A and B. Price confirmed the pattern at B when it closed below the low at C.

Using the measure rule says that the height of the pattern projected downward gives a minimum target. That means taking the height of A to C and subtracting it from C to get D (about 2.600).

That measure uses the full height. For a closer target, I multiply the height (80 points in this case) by 72% since that's how often the full height measure rule works for Adam & Adam double tops. Doing so gives a closer target that price reaches at least 90% of the time. In this example, it doesn't raise the bottom red line much (13 points).

What do I think will happen? I believe the drop is just like the plunge the markets took (Feb 2010?) when rumors of unworkable Greece debt hit the markets. The fear was overblown then and so is this dip. The fear is that the world's oil price will rise if Egypt and other Arab nations become unstable. High oil prices will grind our economy and the rest of the world to a halt, threatening the economic recovery.

I think the markets will recover in short order. I don't expect a lasting downturn to occur here and view this as a buying opportunity. Either that or the world is coming to an end. Repent and return those library books!

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: Up 108.71 points.
Tuesday: Down 3.33 points.
Wednesday: Up 8.25 points.
Thursday: Up 4.39 points.
Friday: Down 166.13 points.

For the Week...

The Dow industrials were down 48.11 points or 0.4%.
The Nasdaq composite was down 2.65 points or 0.1%.
The S&P 500 index was down 7.01 points or 0.5%.

Year to Date...

Dow Industrials
     1.6% down from the high of 12,020.52 on 01/26/2011.
     2.2% up from the low of 11,573.87 on 01/10/2011.
Nasdaq
     2.9% down from the high of 2,766.17 on 01/18/2011.
     0.9% up from the low of 2,663.64 on 01/04/2011.
S&P 500
     2.0% down from the high of 1,302.67 on 01/28/2011.
     1.5% 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.
Productivity & costs8:30 ThD+Cost of producing a unit of output.
Initial jobless claims8:30 ThC+Counts people filing for state unemployment benefits.
Factory orders10:00 ThD+Durable/non-durable goods orders w/factory inventories.
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

As of 01/28/2011, the CPI had:

85 bearish patterns,
2 bullish patterns,
200 patterns waiting for breakout.
The CPI signal is 2.3%, 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.

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  11,670  11,747  11,880  11,956  12,089 
Weekly  11,665  11,744  11,882  11,962  12,100 
Monthly  11,285  11,555  11,788  12,057  12,290 
S&P 500 (^GSPC): Daily  1,257  1,267  1,285  1,294  1,312 
Weekly  1,257  1,267  1,285  1,294  1,312 
Monthly  1,226  1,251  1,277  1,302  1,328 
Nasdaq (^IXIC): Daily  2,632  2,659  2,707  2,735  2,783 
Weekly  2,626  2,656  2,710  2,740  2,794 
Monthly  2,579  2,633  2,699  2,754  2,820 
  • 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 down 30.4%  The trend may continue.
 2 months up 34.6%  The trend may continue.
 S & P 500 (^GSPC) 2 weeks down 20.0%  Expect a reversal soon.
 2 months up 38.2%  The trend may continue.
 Nasdaq composite (^IXIC) 2 weeks down 21.7%  Expect a reversal soon.
 2 months up 40.2%  Expect a random direction.

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

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

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

Buy-and-Hold: 12-Month SMA

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

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Earnings, Chart Patterns & Industries

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

 Found Chart Pattern Name
31Triangle, symmetrical
19Target price
17Head-and-shoulders top
15Rising wedge
15Rectangle top
14Broadening top
13Double Top, Adam and Adam
12Pipe bottom
11Pipe top
10Triple 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. Internet2. Internet
3. Oilfield Svcs/Equipment3. Chemical (Diversified)
4. Chemical (Diversified)4. Oilfield Svcs/Equipment
5. Petroleum (Integrated)5. Chemical (Basic)
48. Alternate Energy48. Household Products
49. Household Products49. Trucking/Transp. Leasing
50. Trucking/Transp. Leasing50. Alternate Energy
51. Cement and Aggregates51. Cement and Aggregates
52. Short ETFs52. Short ETFs

-- Thomas Bulkowski

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Thursday 1/27/11. Can You Survive by Trading?

Recently, Randy C. wrote me an email that asked a question that no one had posed before. I won't share the details, but it asked in essence, "Can I make enough money trading to live on?"

The answer is yes and no. I'm not trying to be flippant, but it's like trying to describe to a blind person what the color orange looks like. If the person was blind from birth, he would have no idea what orange looks like. But if he recently lost his vision, then the answer is easy.

In trading terms, making money is an individual thing. One person took $100,000, read my "Getting Started in Chart Patterns" book, and turned it into $1,000,000 in 13 months. He invested in ETFs that focused on metals a few years ago. He made it sound easy, but he's the exception to the rule.

Picture of a butterfly.

An article in the September 2005 issue of Active Trader magazine discussed an accounting firm that handled the tax returns for over 1,000 stock traders. In 2004, 36% of the them showed a profit and just 4% made over $50,000. Can you live on $50k annually?

How did I do it?

My parents were not rich nor did I have rich uncles. Any money I inherited totaled less than $5,000. I didn't win the lottery or marry rich (I'm single) or luck into found money.

In other words, the money I have I worked for. What makes me unique is that I know how to save and how to invest.

I told Randy to cancel his Cable TV and throw away the cell phone. Cut expenses to the bone. How about putting on a few sweaters and lowering the thermostat to 60...or lower, in the winter? Why buy a car every two years like my neighbor across the street? My 1988 Grand Am works just fine for the 400 miles I put on the thing each year. What do I need a new one for (but airbags and such would be nice).

I started out small, investing $2,000 when I saved enough to afford that. I bought stocks between $5 and $20. When I made another $2k, I bought another stock. Eventually, my portfolio grew enough so that when I found a promising candidate to buy, another stock needed to be sold. I had "rotation" among my holdings.

I was lucky enough to begin investing at the start of the bull market in the early 80s. When the market environment changed, so did my trading style. I moved from investing to position trading to swing to day and back again as conditions warranted.

Picture of a butterfly.

With the growing cost of health care and other expenses, my cost of living is up to $12,000 annually. I have no debt. All I have to do is make 12k and I'm set for a year.

I told Randy that he should paper trade the markets. I've read that the Forex market trends more than stocks. Thus, it should be easier to make money there. But I also warned about the evils of leverage.

I wrote a SFO article about a trader that lost no more than $5,000 in any one trade in his entire career. Then he moved to Forex and fell in love with leverage. He placed a bet using $1.3 million of borrowed money and ended up guessing wrong. Ask Forex or futures traders if they have ever blown out their account...

Another trader I know made $100,000 in his first full year as a trader. His first year! Wow. Unfortunately, his cost of living was, wait for it...$100,000, so he just broke even. The next year, his well-tested mechanical trading system stopped working. Oops. The last I heard, he was trying to sell his house.

Can you make money trading? I can. Maybe you can, too. Some say the real question is this: Can you hold onto your money long enough to learn how to trade?

And it also helps if you buy anything at Amazon.com by going through this website first. Just click on the picture of one of my books on the left. No, you don't have to buy the book, but clicking on the picture takes you to Amazon and it passes a code to them. If you buy anything while there, I receive a small referral fee, but you have to go through this site first, each time. And if you see an ad on this site that interests, you, click on that, too. I have an individual health policy that likes to go up 20% annually and having some extra spending money for food doesn't hurt either!  

-- Thomas Bulkowski

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Tuesday 1/25/11. Tutorial Tuesday: The Monsanto Gambit

Here's a swing trade I completed in the last few days, pictured on the right using the daily scale.

This trade began with the ugly double bottom chart pattern. I don't show it in the figure, but the first bottom is in July and the second is in October. The second bottom squeaks by with just over 5% separation between low prices (5% is the minimum). The tall white candle two days before I bought confirmed the ugly double bottom as a valid chart pattern.

The top of a congestion region (not shown) that stretched from late 2008 to early 2010 was at 88, and the bottom of that region was 70. Thus, that was the target area I was shooting for. If the stock performed well, then 88 was a possible upside target based on a Big W chart pattern (the same as the ugly double bottom but with taller sides). However, I felt that 70 was an easy move.

Picture of Monsanto on the daily scale.

A check of the industry showed that 11 of 12 stocks were trending higher along with the general market. The next earnings were in January, far enough away that I didn't have to worry about the stock making an adverse move on earnings news.

I placed a stop at 58.07 which is just below the recent congestion region. The bottom dashed line is the price level of the stop. The top dashed line is the start of the target area.

I bought the stock on November 8 and received a fill at 62.30 with a potential loss of less than 7% (based on the stop price).

On November 17, I removed the stop "because world events are taking the market lower, allowing the stock to be stopped out. I don't think this is going to fall far (not below 40), so I think I can hold until it recovers from any drop." That's what I wrote in my trading notebook.

I also doubled my position on that day and received a fill at 60.10, averaging down since I had faith that the stock would recover.

Notice that if I did not remove the stop, I would have been taken out a few days after the second buy. And let me also say that this is one of the few times in my trading career where I have removed a stop. It's not something any serious trade does lightly.

Picture of a flower from my garden.

My notes about the second buy are thus: "I am going to buy more because this has thrown back to the tight congestion area (buy at support). With an ugly double bottom in place, I think this is a low risk, high probability win scenario. Sell at 70."

The congestion area I show circled in red, and it's also the region I used to place the stop (a penny below the tall white candle in the first part of that area).

As the chart shows, the stock responded and moved higher. With a good gain, I placed a stop at 71.68, which is a penny below the highest low three candles back (at the time). The highest low is at A and that counts as 1. The third low is at B, which is also below a gap. This is an example of using the 3-bar net line, a technique that I have blogged about.

The day before the stock and the general market tumbled (not the Dow industrials, which held up well), I saw the tight congestion region at A and thought of moving up the stop. I didn't because a higher low had not been posted.

The stock hit my stop on January 19 at 71.67, for a gain of 15% on the first trade and 19% on the second.

-- Thomas Bulkowski

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Monday 1/24/11. Market Monday: The Week Ahead

Picture of the Dow industrials on the daily scale.

My Prediction

The Dow has weathered the recent turmoil in the markets better than the Nasdaq. The strong push higher in the Nasdaq during the last few months suggested a larger give back when the trend ended. That is what appears to have happened for the last few days.

The Dow, by contrast, just keeps moving higher as the chart on the right shows. But how much higher will it go?

One way to guess at that is to do a 38% Fibonacci extension. Take the difference from B (11,451) to A (9,936) or 1,515, multiply it by 38% or 576 and add that to B to get a target of about 12,000.

My target is just above that, 12,100, but who's counting? The 12,000 number is a round number (numbers that end in 0) which tend to show more resistance. The 12100 number is based on overhead resistance setup by a few spikes/congestion regions in 2007 and 2008.

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: Up 50.55 points.
Wednesday: Down 12.64 points.
Thursday: Down 2.49 points.
Friday: Up 49.01 points.
Saturday: Holiday or other weird event!

For the Week...

The Dow industrials were up 84.43 points or 0.7%.
The Nasdaq composite was down 65.76 points or 2.4%.
The S&P 500 index was down 9.89 points or 0.8%.

Year to Date...

Dow Industrials
     0.3% down from the high of 11,905.48 on 01/21/2011.
     2.6% up from the low of 11,573.87 on 01/10/2011.
Nasdaq
     2.8% down from the high of 2,766.17 on 01/18/2011.
     1.0% up from the low of 2,663.64 on 01/04/2011.
S&P 500
     1.0% down from the high of 1,296.06 on 01/18/2011.
     2.0% 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
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.
FOMC Rate decision2:15 W?The Federal Reserves reports on interest rate changes.
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.
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 01/21/2011, the CPI had:

11 bearish patterns,
9 bullish patterns,
206 patterns waiting for breakout.
The CPI signal is 45.0%, which is neutral (between 35% and 65%).

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

Swing Traders: Pivot Points

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

IndexS2S1PivotR1R2
Dow Industrials (^DJI): Daily  11,784  11,828  11,867  11,911  11,949 
Weekly  11,680  11,776  11,841  11,937  12,001 
Monthly  11,277  11,575  11,740  12,037  12,203 
S&P 500 (^GSPC): Daily  1,276  1,280  1,286  1,289  1,295 
Weekly  1,259  1,271  1,284  1,296  1,308 
Monthly  1,217  1,250  1,273  1,306  1,329 
Nasdaq (^IXIC): Daily  2,666  2,678  2,700  2,712  2,734 
Weekly  2,635  2,662  2,714  2,742  2,794 
Monthly  2,565  2,627  2,697  2,759  2,828 
  • 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) 8 weeks up 0.0%  Expect a reversal soon.
 2 months up 34.6%  The trend may continue.
 S & P 500 (^GSPC) 1 week down 30.7%  The trend may continue.
 2 months up 38.2%  The trend may continue.
 Nasdaq composite (^IXIC) 1 week down 33.5%  The trend may continue.
 2 months up 40.2%  Expect a random direction.

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

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

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

Buy-and-Hold: 12-Month SMA

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

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
32Triangle, symmetrical
22Head-and-shoulders top
19Rising wedge
17Target price
16Double Top, Adam and Adam
15Rectangle top
14Triple top
13Double Top, Adam and Eve
12Broadening top
11Triangle, ascending

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. Internet2. Internet
3. Chemical (Diversified)3. Chemical (Diversified)
4. Oilfield Svcs/Equipment4. Chemical (Basic)
5. Chemical (Basic)5. Oilfield Svcs/Equipment
48. Household Products48. Medical Supplies
49. Trucking/Transp. Leasing49. Cement and Aggregates
50. Alternate Energy50. Alternate Energy
51. Cement and Aggregates51. Household Products
52. Short ETFs52. Short ETFs

-- Thomas Bulkowski

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Thursday 1/20/11. Annual Check List

Picture of a flower from my garden.

When I watch the local news while I'm making lunch, they sometimes show someone's place burning down. Then they make a curious remark: "The smoke detectors were not working."

My smoke detectors beep when the battery gets low (the one in the garage goes off every 6 months or so, because it's colder than the house). However, many recommend that you replace the batteries in your smoke detector annually. So, here's the first item on Tom's Annual Check List.

  • Change or at least check the batteries in each smoke detector.

Next, go into your medicine cabinet. Authorities will tell you that if it's located in the bathroom, then you're making a mistake. High humidity ruins drugs. Check the expiration date on each bottle and throw out the expired ones. Why? I recall seeing the BBC show Vets, and they told the tale of a poor sap that used flea powder on his dog. The problem was that the powder expired. After expiration, it turned lethal to the dog, too, not just fleas. The defective product was recalled, but many old packages were still around and still being used. Now imagine that the expired drug in your medicine cabinet works the same way. Uh-oh. Throw it out, and you don't have that type of worry.

  • Throw out expired medications.

Have you checked your credit report? You can do so for free once each year, for each of the three main credit bureaus. Here's the website: https://www.annualcreditreport.com.

Notice that it has https where "s" is for a secure site. They will ask you for your social security number and other security questions to make sure you are who you think you are, so be prepared. One bureau asked me the street where I lived 30 years ago. I think the sites double as an Alzheimer's test.

  • Check your three credit reports annually.

Finally, register your phone on the national do not call list. Here's the website: https://www.donotcall.gov/default.aspx. Notice that it's another secure website. You can enter an existing phone number and check that it's still on the list. Numbers on the list are not removed, so you only have to register once.

  • Add your phone number to the national do not call list.

-- Thomas Bulkowski

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Tuesday 1/18/11. Market Monday on Tuesday: The Week Ahead

My Prediction

Picture of the Dow utilities on the daily scale.

I show a picture of the Dow utilities index on the weekly scale. It shows an ascending triangle. It's not a perfect triangle because of the excess amount of white space in the middle of the pattern.

To identify an ascending triangle, look for prices to hit a ceiling upon which you can draw a horizontal (or nearly so) trendline. Along the bottom, price forms higher lows and a line drawn beneath them angles upward and joins with the top trendline like that shown in red. Price should cross from trendline to trendline filling the space with price movement, but that's what this triangle is missing.

The breakout from ascending triangles is upward 70% of the time (testing found this).

What this chart tells me is that despite global warming and issues of new pollution control measures the utilities will have to adopt in the coming years, this year should be a good one for utility companies.

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A Brief Look Back

Picture of a flower from my garden.

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

Monday: Down 37.31 points.
Tuesday: Up 34.43 points.
Wednesday: Up 83.56 points.
Thursday: Down 23.54 points.
Friday: Up 55.48 points.

For the Week...

The Dow industrials were up 112.62 points or 1.0%.
The Nasdaq composite was up 52.13 points or 1.9%.
The S&P 500 index was up 21.74 points or 1.7%.

Year to Date...

Dow Industrials
     0.1% down from the high of 11,794.15 on 01/14/2011.
     1.8% up from the low of 11,573.87 on 01/10/2011.
Nasdaq
     0.0% down from the high of 2,755.30 on 01/14/2011.
     3.4% up from the low of 2,663.64 on 01/04/2011.
S&P 500
     0.0% down from the high of 1,293.24 on 01/14/2011.
     2.8% 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
Monday: Market holiday
Housing starts8:30 WB-Number of homes beginning construction.
Building permits8:30 WB-Measures building permits for new construction.
Initial jobless claims8:30 ThC+Counts people filing for state unemployment benefits.
Existing home sales10:00 ThCCounts sales of used homes.
Leading indicators10:00 ThD-Summary of already known reports.
Crude inventories11:00 Th?My guess: Measures oil inventory.

Options Expiration

The following is courtesy of the Options Industry Council.

OptionDate
VIX 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).

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Swing and Position Traders: Chart Pattern Indicator

As of 01/14/2011, the CPI had:

12 bearish patterns,
76 bullish patterns,
385 patterns waiting for breakout.
The CPI signal is 86.4%, 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.

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  11,665  11,726  11,760  11,821  11,855 
Weekly  11,498  11,643  11,718  11,863  11,939 
Monthly  11,210  11,499  11,646  11,935  12,083 
S&P 500 (^GSPC): Daily  1,277  1,285  1,289  1,297  1,301 
Weekly  1,252  1,273  1,283  1,304  1,314 
Monthly  1,212  1,253  1,273  1,313  1,334 
Nasdaq (^IXIC): Daily  2,721  2,738  2,747  2,764  2,772 
Weekly  2,658  2,707  2,731  2,780  2,804 
Monthly  2,566  2,661  2,708  2,803  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) 7 weeks up 4.6%  Expect a reversal soon.
 2 months up 34.6%  The trend may continue.
 S & P 500 (^GSPC) 7 weeks up 1.7%  Expect a reversal soon.
 2 months up 38.2%  The trend may continue.
 Nasdaq composite (^IXIC) 2 weeks up 26.1%  The trend may continue.
 2 months up 40.2%  Expect a random direction.

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

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

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

Buy-and-Hold: 12-Month SMA

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

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Earnings, Chart Patterns & Industries

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

 Found Chart Pattern Name
29Triangle, symmetrical
15Rising wedge
13Rectangle top
13Double Top, Adam and Adam
10Head-and-shoulders top
10Triangle, descending
10Triangle, ascending
9Broadening top
8Double Top, Eve and Adam
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. Internet2. Internet
3. Chemical (Diversified)3. Chemical (Diversified)
4. Chemical (Basic)4. Chemical (Basic)
5. Oilfield Svcs/Equipment5. Metals and Mining (Div.)
48. Medical Supplies48. Household Products
49. Cement and Aggregates49. Cement and Aggregates
50. Alternate Energy50. Medical Supplies
51. Household Products51. Alternate Energy
52. Short ETFs52. Short ETFs

-- Thomas Bulkowski

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Thursday 1/13/10. The Best Performing Chart Patterns!

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.

I scanned my database of chart patterns (the popular ones) and found almost 20,000 samples. I then measured the price move 1, 2, 3 and 6 months after the breakout. I show only a max of 3 months below. This measurement technique is different that the one I used in my books. There, I measured the move assuming a perfect trade, from breakout to ultimate high or low (after which price dropped or rose by at least 20%).

This table is just another way of slicing the same information. However, it does contain surprises.

Flags placing second (upward breakouts) and pennants coming in fourth surprised me. Also notice that the cup with handle doesn't appear in the list. That's because performance is poor -- it ranked 11th, so it didn't make the top 10.

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 flags32%33%27%
Flag16%22%17%
Eve & Eve double bottom9%14%15%
Pennant14%14%12%
Rectangle Bottom7%13%19%
Rounded top9%12%17%
Head-and-shoulders bottom7%11%15%
Adam & Eve double bottom7%10%10%
Broadening wedge, ascending8%10%16%
Broadening Tops7%10%12%
 
 Pattern: Down Breakouts  1 Month
Loss 
 2 Month
Loss 
 3 Month
Loss 
Complex head-and-shoulders top-7%-10%-9%
Diamond Tops-11%-9%-9%
Head-and-shoulders top-8%-9%-8%
Adam & Eve double top-7%-6%-7%
Diamond bottom-11%-6%-4%
Eve & Adam double top-8%-6%-3%
Eve & Eve double top-7%-6%-2%
Triangle, descending-6%-6%-6%
Broadening wedge, descending-5%-5%-8%
Rectangle Top-5%-5%-4%

-- Thomas Bulkowski

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Picture of a flower from my garden.

Tuesday, 1/11/11. Tutorial Tuesday: What Are ETNs?

Until I read the February 2011 issue of Active Trader magazine ("Exchange-traded notes"), I would have corrected someone saying "ETN" when I thought they meant "ETF." An ETF is an exchange traded fund. An ETN is an exchange traded note. They are the new kids on the block, having been created in 2006 by Barclays Bank, according to the article.

As you might have guessed from the name, ETNs trade debt instruments instead of stocks.

According to an earlier February 2008 article ("The ABCs of ETFs"), "ETNs are debt instruments, meaning the company offering the ETN is assuming all the risk for the product. So if the company were to go bankrupt, the ETN would become worthless. This differs from ETF trusts because, while the company holding the trust could become insolvent, the trust would still exist and could be managed by another firm." That's an important distinction that investors in Lehman Brothers ETN discovered when Lehman failed in 2008.

ETNs are bought and sold like stocks and listed on the major exchanges. ETNs represent a promise by the issuer to deliver a specified return, and that return is disclosed in the terms of the note. ETNs can expire, but often that expiration date is years into the future.

Because an ETN has a fixed return, it helps reduce the tracking error more common to ETFs, according to the 2011 article. Tracking error is the difference between the ETNs return and the return of the underlying security.

Since ETNs are a comparatively recent invention, trading volume can be thin, so check that before investing.

-- Thomas Bulkowski

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Monday 1/10/11. Market Monday: The Week Ahead

My Prediction

Picture of GLD on the daily scale.

I show a picture of SPDR Gold Shares (GLD) exchange traded fund on the daily scale.

The peaks marked A, B, and C could be viewed as a head-and-shoulders top chart pattern. However, I think that the three tops are close enough to the same price that it better qualifies as a triple top. The "head" (point B), for example, is not significantly above the other two peaks, disqualifying it as a head-and-shoulders top.

Having said that, a neckline connecting the two armpits appears on the chart as line D. When price closes below this line, then it suggests a trend change.

Line E, is the usual confirmation line that would qualify the triple top as a valid chart pattern once GLD closed below it. That hasn't happened yet. Thus, all that is really shown on the chart are three bumps and not a triple top.

It's possible that once price closes below E, that GLD will retrace back to its launch price. That would mean a decline back to 113, the July low. Often price stops before reaching the launch price, so a better target would be 116 to 119, based on this chart. On the longer-term chart, there is support at 122-123, which is a better target.

Will a drop of such magnitude occur? It certainly is possible. My guess is that yes, a GLD will drop to the 120 to 124 region, but it will take months for that to happen.

Alternatively, the fund could bust the triple top by closing above peak B, the highest of the three peaks. That would suggest a strong move upward.

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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 93.24 points.
Tuesday: Up 20.43 points.
Wednesday: Up 31.71 points.
Thursday: Down 25.58 points.
Friday: Down 22.55 points.

For the Week...

The Dow industrials were up 97.25 points or 0.8%.
The Nasdaq composite was up 50.3 points or 1.9%.
The S&P 500 index was up 13.86 points or 1.1%.

Year to Date...

Dow Industrials
     0.6% down from the high of 11,742.68 on 01/05/2011.
     0.8% up from the low of 11,577.35 on 01/03/2011.
Nasdaq
     0.5% down from the high of 2,715.96 on 01/07/2011.
     1.5% up from the low of 2,663.64 on 01/04/2011.
S&P 500
     0.5% down from the high of 1,278.17 on 01/06/2011.
     1.1% 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
Wholesale inventories10:00 TD-Wholesale sales and inventory statistics.
International trade8:30 WC+Import/export prices, trade balance. US economy vs others.
Crude inventories10:30 W?My guess: Measures oil inventory.
Treasury budget2:00 WDTracks budget deficit. Important in April (tax filing).
FEDs Beige book2:00 W?Reports on economic conditions.
Initial jobless claims8:30 ThC+Counts people filing for state unemployment benefits.
Producer price index8:30 ThB-Measures wholesale goods cost. An indication of future inflation.
Trade balance8:30 ThC+Signals balance of exports & imports.
Consumer price index8:30 FB+Inflation report. Measures cost of goods and services.
Retail sales8:30 FA-Reports total retail sales (not services). Are people spending?
Industrial production9:15 FB-Production of utilities, mines, and manufacturers.
Capacity utilization9:15 FB-Gauges economic activity, hints of inflation.
Business inventories10:00 FC-Reports manufacturing, wholesale, retail inventories.

Options Expiration

No options expire this week.

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Swing and Position Traders: Chart Pattern Indicator

As of 01/07/2011, the CPI had:

9 bearish patterns,
9 bullish patterns,
71 patterns waiting for breakout.
The CPI signal is 50.0%, which is neutral (between 35% and 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.

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  11,540  11,607  11,667  11,735  11,794 
Weekly  11,500  11,587  11,665  11,753  11,830 
Monthly  11,155  11,415  11,579  11,839  12,003 
S&P 500 (^GSPC): Daily  1,255  1,263  1,270  1,278  1,285 
Weekly  1,249  1,260  1,269  1,281  1,290 
Monthly  1,194  1,233  1,255  1,294  1,317 
Nasdaq (^IXIC): Daily  2,659  2,681  2,698  2,721  2,738 
Weekly  2,642  2,673  2,694  2,725  2,747 
Monthly  2,514  2,609  2,662  2,757  2,810 
  • 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) 6 weeks up 5.9%  Expect a reversal soon.
 2 months up 34.6%  The trend may continue.
 S & P 500 (^GSPC) 6 weeks up 3.1%  Expect a reversal soon.
 2 months up 38.2%  The trend may continue.
 Nasdaq composite (^IXIC) 1 week up 40.0%  The trend may continue.
 2 months up 40.2%  Expect a random direction.

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

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

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

Buy-and-Hold: 12-Month SMA

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

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Earnings, Chart Patterns & Industries

Earnings season will be starting in about 4 days.

 Found Chart Pattern Name
31Triangle, symmetrical
16Rising wedge
9Rectangle top
9Triangle, ascending
9Double Top, Adam and Adam
7Triangle, descending
7Head-and-shoulders top
6Triple top
6Double Top, Eve and Adam
6Target price

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. Internet2. Internet
3. Chemical (Diversified)3. Chemical (Diversified)
4. Chemical (Basic)4. Metals and Mining (Div.)
5. Metals and Mining (Div.)5. Chemical (Basic)
48. Household Products48. Alternate Energy
49. Cement and Aggregates49. Food Processing
50. Medical Supplies50. Household Products
51. Alternate Energy51. Medical Supplies
52. Short ETFs52. Short ETFs

-- Thomas Bulkowski

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Thursday 1/6/10. Putting Noise to Work: New Findings

I've been exploring noise, something I wrote a tutorial on and blogged about. The research is now paying fruit and I'd like to share some of the findings with you.

I started with double bottoms, a chart pattern that most of you are probably familiar with. I measured the noise in the month, 3 months, and 6 months leading to the start of the first bottom and tracked the post-breakout performance.

Picture of a flower from my garden.

The most significant performance improvement came from a 6 month noise look back (meaning I looked at the noise 6 months before the start of the chart pattern). Stocks with noise below the median improved performance by 26% compared to those with above median noise!

The next finding concerns the throwback rate. Double bottoms with below median noise suffered more throwbacks than did those with above median noise.

This surprised me. The results showed the same trend regardless of the 1, 3 or 6 month look back (and I had over 2,000 double bottom samples).

Then I looked at noise after the breakout. I found that the same throwback trend occurred (meaning more throwbacks occur after chart patterns with below median noise) with the various types of double bottoms, regardless of the look back used.

A year or two ago, one person emailed me with the idea about how "trendy" a chart pattern was. My research on noise is beginning to shed light on that issue. I separated the noise into the various types of Adam and Eve double bottoms. Eve & Adam double bottoms outperform tremendously when you consider noise into the picture. The average move from the breakout to the ultimate high (a perfect trade, so don't expect to duplicate it) is 28%. If the double bottom shows below median noise, the performance shoots to 48%. Adam & Adam double bottoms also tie with a 48% gain. Those two types of double bottoms show the best post-breakout trends (they are "trendy").

This says that you should concentrate on Eve & Adam or Adam & Adam double bottoms with below median noise. Samples are somewhat few (157 for EADBs and 238 for AADBs), meaning the results may change with additional samples. I would expect the trend to remain but the performance numbers to narrow somewhat with additional samples.

-- Thomas Bulkowski

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Tuesday, 1/4/11. Tutorial Tuesday: 5 Tips to Determine Market Direction

Yahoo!finance home page

Before the market opens, how can you tell the direction the markets are going to take? Here are some tips.

  1. Go to yahoo!finance and look at the home page. I show a portion of it. This is a screen shot. If you visit the site after the open, the futures numbers may not be there.

    Circled in red are the Dow futures. If the values shown on the website are negative, then expect a lower open. Positive values usually mean a higher open. The larger the values, the larger the move. I consider a large move as plus or minus 20.

    The futures indicator is like all other indicators: It is not perfect, but I have found it to be reliable. After the first 5 or 10 minutes, then anything can happen, but the indicator usually gets the opening direction right and it suggests the strength behind the move.

  2. Black marubozu candlesticks
  3. Before the market opens, look at the prior price trend and the last candlestick. If you see a black marubozu or a closing black marubozu, then expect price to open lower. Why? Because price is already tumbling at a good clip, so downward momentum will tend to push price lower, at least for a while. The black candles should be tall ones and appear in a downtrend with the best trend being a straight-line one where price near the bottom of one candle becomes the top of the next (or they gap lower). Also look for candles with very small or no lower shadow. The appearance of a lower shadow means some hesitation in the downward move. Check the intra day chart and look for nearby support. If some appears, then the market may turn quickly.
  4. Candlesticks with long lower shadows
  5. Tall candles with unusually long shadows, like the ones pictured on the left, suggest that price bounced off support or resistance. In non-candle speak, these are called spikes or tails. Look at the prior day's price trend and the direction the market was moving before the close. If price bounced off the low in the last hour and was moving up, then expect the up move to continue. If price hits the low earlier in the day and was moving down near the session end, then expect the downtrend to continue. In that case, you may find that a bullish reversal occurs soon after the open.
  6. If the candle is a tall one, then expect a partial retrace of the candle. Think of this move as a Fibonacci retrace as it applies to the prior candle. Expect price to bounce between 38% and 62% of the prior candle height. Several of the intra day setups make use of this retrace behavior, so be sure and read those.
  7. Once the session begins, keep an eye on the clock. Why? Because price often reverses 15 to 20 minutes into a trading session. If you are looking to buy (long) when price has been moving up since the opening and it is 15 minutes into the session, then that is almost suicide. Wait for price to reverse and go short. Same with a strong downtrend at the open. Expect a reversal 15 to 20 minutes into the session and then buy long.

-- Thomas Bulkowski

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Monday 1/3/11. Market Monday: The Week Ahead

My Prediction

No prediction this week because it's late Sunday night and I've run out of time today. Let me give you a quick review of the year's performance instead.

Dow transports, the best performer, up 24.6%
Nasdaq composite, up 16.9%
S&P 500 index up 12.8%
The Dow industrials climbed 11.0%
Dow utilities, up 1.8%

The model portfolios had a mixed year.

Mutual funds, winners: up 21.9%, the best performer
Wilder RSI: up 19.0%
Mutual funds, losers: up 7.4%
Industry relative strength, down 4.1% - this is the big surprise

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A Brief Look Back

Picture of a flower from my garden.

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

Monday: Down 18.46 points.
Tuesday: Up 20.51 points.
Wednesday: Up 9.84 points.
Thursday: Down 15.67 points.
Friday: Up 7.8 points.

For the Week...

The Dow industrials were up 4.02 points or 0.0%.
The Nasdaq composite was down 12.73 points or 0.5%.
The S&P 500 index was up 0.87 points or 0.1%.

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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
Construction spending10:00 MDCovers residential/non-residential/public spending on new construction.
Factory orders10:00 TD+Durable/non-durable goods orders w/factory inventories.
FOMC Minutes2:00 T?Minutes of the prior Federal Reserve meeting.
Auto & truck sales3:00 TC-Monthly sales of domestically produced vehicles.
Crude inventories10:30 W?My guess: Measures oil inventory.
Initial jobless claims8:30 ThC+Counts people filing for state unemployment benefits.
4 Employment reports8:30 FANonfarm payrolls, unemployment rate, avg workweek, hourly earnings.
Consumer credit2:00 FD-Measures auto, credit card and other debt.

Options Expiration

No options expire this week.

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Swing and Position Traders: Chart Pattern Indicator

On 12/31/2010, the chart pattern indicator (CPI) had:

40 bearish patterns,
10 bullish patterns,
551 patterns waiting for breakout.
The CPI signal is 20.0%, 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.

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  11,501  11,539  11,568  11,607  11,636 
Weekly  11,467  11,522  11,574  11,629  11,680 
Monthly  10,682  11,130  11,377  11,825  12,073 
S&P 500 (^GSPC): Daily  1,252  1,255  1,257  1,260  1,262 
Weekly  1,246  1,252  1,257  1,263  1,268 
Monthly  1,142  1,200  1,231  1,289  1,320 
Nasdaq (^IXIC): Daily  2,641  2,647  2,655  2,660  2,668 
Weekly  2,629  2,641  2,657  2,669  2,685 
Monthly  2,419  2,536  2,606  2,723  2,792 
  • 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) 5 weeks up 7.1%  Expect a reversal soon.
 1 month up 51.3%  Expect a random direction.
 S & P 500 (^GSPC) 5 weeks up 6.5%  Expect a reversal soon.
 1 month up 53.7%  Expect a random direction.
 Nasdaq composite (^IXIC) 1 week down 33.7%  The trend may continue.
 1 month up 48.3%  Expect a random direction.

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

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

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

Buy-and-Hold: 12-Month SMA

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

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Earnings, Chart Patterns & Industries

Earnings season will be starting in about 11 days.

 Found Chart Pattern Name
19Triangle, symmetrical
16Rising wedge
6Target price
6Triangle, ascending
5Head-and-shoulders bottom
5Broadening wedge, descending
4Flag
4Head-and-shoulders top
4Triangle, descending
3Pipe 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. Internet2. Internet
3. Chemical (Diversified)3. Oilfield Svcs/Equipment
4. Metals and Mining (Div.)4. Chemical (Basic)
5. Chemical (Basic)5. Metals and Mining (Div.)
48. Alternate Energy48. Household Products
49. Food Processing49. Aerospace/Defense
50. Household Products50. Food Processing
51. Medical Supplies51. Medical Supplies
52. Short ETFs52. Short ETFs

-- Thomas Bulkowski

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