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

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Busted
Patterns
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Patterns
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Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 12/11/2017
24,386 56.87 0.2%
10,371 -31.68 -0.3%
763 4.90 0.6%
6,875 35.00 0.5%
2,660 8.49 0.3%
YTD
23.4%
14.7%
15.6%
27.7%
18.8%
Tom's Targets    Overview: 11/30/2017
24,600 or 23,500 by 12/15/2017
9,900 or 10,500 by 12/15/2017
800 or 750 by 12/15/2017
7,100 or 6,700 by 12/15/2017
2,725 or 2,575 by 12/15/2017

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

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Thursday, 7/31/2008. Nasdaq Shows Bearish Doji Star But Is It?

A chart of the Nasdaq composite (^IXIC) on the daily scale.

The chart shows the Nasdaq composite (^IXIC) on the daily scale and the one thing that caught my eye was the most recent candle. I looked at that and said "tomorrow will be a down day." Why?

Yesterday (Tuesday, since I am writing this on Wednesday evening), was a tall white candle with almost no shadows. Today is a doji. A doji candlestick is one in which the opening and closing prices are the same or almost the same. The difference today is 0.72 points which is why it looks so thin. I view this as a loss of upward momentum. The bulls pushed price upward a lot yesterday but today the buying demand equaled the selling pressure. Stalemate. That tells me price will close lower tomorrow. But is that correct?

I opened my book, Encyclopedia of Candlestick Charts and looked near the back until I found the visual index which makes identification easier. When I spoke recently to Canadian journalist Alex Roslin about the markets, you can be sure I had the book open. It is an invaluable resource. Anyway, the index showed that I was looking at a bearish doji star (the chapter on that candlestick starts on page 266).

I highlight the bearish doji star as an inset in the figure. It is a two line candle that occurs in an uptrend. Clearly the uptrend is weak in this example, but price has been climbing (higher closes) for three days now. The first day in the candlestick pattern is a tall white candle followed by a doji. The doji gaps open above the prior candle’s body, just as the inset shows. The second day is a doji and one in which I restrict the shadow length to be less than the height of the prior body. In other words, the doji should fit inside the body of the prior day, which it does. In the ideal case, the doji star would have small shadows and not longer ones like this one, but does size really matter? The end result is the same with price closing at the opening price. All long shadows say is which of the warring parties had control for a while during the day.

Traditional candle lovers will tell you that the bearish doji star is just as the name implies: bearish. But is it? No. It’s actually bullish 69% of the time in a bull market and bullish 67% of the time in a bear market. By bullish, I mean that in over two out of every three trades, price will first close above the top of the candle pattern. In short, price breaks out upward.

I tested 11,810 bearish doji stars in both bull and bear markets, and that is what I found. Thus, I do not believe that the coming days will see a close below the low of the pattern. My guess is that it closes above the higher of the two candles in the pattern before it closes below the bottom of it. That usually takes 3 to 6 days, so we won’t know the true outcome for a while. But nothing is perfect in this market and with the price of oil spiking upward today on lower inventories, that could spook the market tomorrow. We may see a downward breakout first. Nevertheless, I intend to place a buy stop on a stock I have been watching. It shows a different candle pattern. I wonder what the name of it is? Where’s my book?

-- Thomas Bulkowski

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Wednesday, 7/30/2008. Roof Pattern in QID. What Does It Mean?

A chart of UltraShort QQQ ProShares (QID) on the daily scale.

My guess is you have never heard of a roof chart pattern before, but it is one I discovered in early 2005. The UltraShort QQQ ProShares (QID) and the Short QQQ ProShares (PSQ) both show roof patterns. The chart shows the one in the QID, outlined in red.

The QID is an exchange traded fund that, according to yahoo!finance, "seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the NASDAQ-100 index." If you expect the Nasdaq 100 index to drop, you would buy (long) the ETF.

Returning to the roof pattern, it often looks like a head-and-shoulders top, but there are often more shoulders and a relatively flat foundation (bottom). The pattern looks like a right-angled and ascending broadening formation backing into a descending triangle. Price should cross the pattern many times, filling the space with price movement. Often, but not always, price trends upward leading to the start of the pattern and the breakout is usually downward. Both the QID and PSQ are good examples of roofs.

The best performing roof patterns are those that look like a house standing on stilts. In other words, the price trend leading to the start of the pattern should be a straight-line affair. If and when a downward breakout comes, price often retraces much of the prior rise. The QID does not show a strong straight-line run leading to the pattern. I show the starting point of the sharp move up at A.

The idealized version of the roof appears in the inset. Price begins the straight-line move up at B and it is a steep rise. The roof pattern begins at C. After the roof ends, price breaks out downward and works its way to D. Notice that D is slightly higher than the launch price B. That is frequently the case, so be ready to take profits if you see price stall on the way down.

Which way will the QID break out? I have no idea. If price closes below the bottom of the pattern, then that is a downward breakout. That means the market is moving up. Since the chart pattern indicator has changed back into bullish mode, a downward breakout of the roof is what I expect to see.

-- Thomas Bulkowski


Tuesday, 7/29/2008. Learn How Prior Price Trends Predict the Future.

I completed part 1 of research on prior price trends. When you look at the price trend over the prior month, 3 months, and year, it helps predict where price is going in the coming quarter. Knowing that price could rise by 24% or drop by 17% in the next 3 months is not enough to select a stock for purchase or sale, but it does provide valuable information. Coupled with support and resistance areas, I show you how often price reaches those targets. You can read the research by clicking here.

-- Thomas Bulkowski

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Monday, 7/28/2008. GLW: Bottom Fishing with Corning.

A chart of Corning (GLW) on the monthly scale.

Before I get to GLW, I am gratified to see that the utility average has neared my price target. The low today was 476.24 and I predicted it would reach 475. The industrials did climb to 11,650 (reaching a high of 11,695), but it has more work to do to get down to 10,900. Click on a link in the grid at the top of the page for an explanation of each target.

I am writing this on Thursday afternoon, July 24. Now that the Dow has reached bottom and is in the process of bouncing up and probably dropping back down, it is time to do some bottom fishing.

I started by looking at the Wilder RSI test portfolio’s most recent buy candidates, namely: HOC, AIG, ELX, GLW, RTI, SLT, USG, and GR. I found three that I like: HOC, RTI, and GLW. GLW (Corning glass works) shows the most promise, so that is the one I will explore today.

Looking at the stock on the monthly chart shows the havoc the bull to bear swing wrecked on the company in 2000 to 2002. Price peaked on a split adjusted basis at 113.33 and then dropped all the way down to the earth’s core, bottoming at 1.10. If only you had bought a million shares then, right?

Price recovered as the chart shows, recently forming what I call a monthly symmetrical triangle. That represents a trading setup for a longer term play. If you look closely at the chart, you will see that price peaks out the top of the triangle and below the bottom, busting the triangle twice. My hope is that price will recover and bust out the top again.

Fundamentals

Let’s talk about the fundamentals for a moment. An analysis of the numbers will give us a stronger foundation when considering this stock for purchase. As of July 21, a report by Standard and Poors on the company rates it a strong buy, their highest rating. The stock is trading near the yearly low, and is optionable, meaning you can buy a protective put to protect your downside. In the Highlights portion of the report, they stress sales growth of 18% this year and 13% next year, based on "pricing pressure from display customers" for the slowdown in forecasted sales. On the risks side, they warn of "soft demand for flat panel displays, unstable pricing on display technologies products, and weaker demand with narrower margins in the telecom unit." They have a $30 price target for the next 12 months. The stock is current trading at about 20, so that would be a tasty rise, and probably wishful thinking.

The report from Ford Equity Research also has a buy on the stock and notes that "Long and short term historical price performance indicates above average performance for the next 3 months." I like that! Their chart shows the current price of the stock at the bottom of a P/E channel using 13x (channel low) to 39x (channel high) trailing EPS, which is a good thing. They explain the model as "bands based on the highest and lowest P/E ratio in the past five years applied to the trailing 12 month operating earnings." Buy near the bottom of the channel and sell near the top, and you will do well. They note that earnings growth is accelerating and the stock is undervalued according to the earnings yield.

For both reports, the financial numbers date to 2007, so I consider them meaningless. However, Ford shows the price/earnings and price/cash flow at the 5 year low. Price to book value and price/value are not at the absolute 5-year lows, but they are very close. Price to sales is higher, but still below the mid point of the 5-year scale. Ford’s report is dated July 18, 2008, but I do not know if the ratios just mentioned use 2007 data or the latest available. It appears to be based on the most recent data.

There has been lots of insider selling as the stock peaked near 28 in May and June. Four insiders bought on the way down since then, scooping up a massive 102 shares combined. That is about 33 shares each, not 33,000 or anything like that.

Technicals

A chart of Corning (GLW) on the daily scale.

This is a chart of Corning on the daily scale. It does not show the same symmetrical triangle as the prior chart. First, the vertical green line I drew from the highest peak downward. Notice how close it is the triangle apex? The apex often marks a turning point for the stock. The link discusses tests that show the apex is within 3.6 days, on average, of a minor high or low forming. Two additional tests shows that the apex marks a turn between 60% and 75% of the time.

Notice the drop from C to D. I could find no explanation for this decline. In fact, near the top (June 20), the company was touting how they expected LCD TV sales growth in the 25% to 30% range. The timing of the news is just after the insiders dumped their shares. Lucky them.

The company has an earnings announcement scheduled for July 30, just a few days away. It will be safest to wait for their announcement to see how price reacts before buying the stock.

As I mentioned at the start of this research note, the Wilder RSI indicator shows the stock oversold, meaning it is a steal at current prices (but it could be much cheaper a month from now). A look at my notebook entry (and I do not own the stock, as of this posting, but I may buy it in the future) shows that a volatility stop at 18.55 or 7.8% below Wednesday’s close would work well. That is below the congestion region of 19.50 to 21. If I owned the stock, I would move the stop closer, probably below the July 15 low of 19.31, say, 19.27. If the stock were to hit that, I would assume it would continue dropping.

Returning to the top chart (monthly scale), you can see how the price can crumble. Thus, use a stop on this one, even if you think it will be a long-term holding. Also, price could drop to E, a point that marked a quick rise leading to the start of the monthly symmetrical triangle. Quick declines often follow quick rises, so you will want to use a stop to protect your position.

I have a target price of 26 with the 23 area showing overhead resistance that may blunt a rise. I see support in the 19 to 19.50 range, just below where price is trading now. In fact the 20 area is a nice round number that when pierced, moving down, could signal bad news. However, since price has already dropped to 19.31, it could visit the area again before making a determined run up.

RSI shows a bullish failure swing. CCI shows bullish divergence. I consider this stock a buy, but I must warn you that the stock is sitting on a support area. If it moves up from this zone, then I expect it to hit 23 to 26. If it pierces the support area instead, it could resume the downward swing, perhaps quickly. Which way it is likely to go is unknown.

You could buy a protective put on any holdings. A financial adviser that uses protective puts suggests taking 10% of the price and subtracting that from the current price to get the strike price with an expiration date 2 months out. Thus, it would be like using a 10% stop loss, she says. That would mean the September 17.50s, which are trading at 33 cents (PFEUW.X, according to yahoo). Better double check my work since I am not a regular option player.

This analysis is just an idea of how I go about shopping for a stock. I am not advocating you buy this, but I find it appealing. I would certainly wait for the quarterly announcement before buying or if you decide to buy now, then use the put just in case the market hates the announcement. I will hold off until after the announcement, and when the direction is clear. As price stands now (after Thursday’s close), this could break out of congestion moving downward.

-- Thomas Bulkowski

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Thursday, 7/24/2008. Transports Moving Up. Why?

A picture of a Palmetto bug.

Last night I spotted a cockroach the size of a football on my kitchen countertop. My flyswatter soon banished the bug. I remember reading that these bugs are not roaches at all, but water bugs, maybe palmetto bugs. A quick check of the Internet (from which I borrowed the picture) says they are all names for the same insect. At least tonight we will have fresh meat to dine on... And that red thing is a cigarette lighter.

Speaking of fresh meat, I was almost road kill today. Ducks at the park crossed my bike path, and I had to slam on the brake to avoid hitting one when it doubled back. The rest of the clan started screaming when my brake squealed as it does when I stop. I tried replacing the brake pads but no success. Perhaps a splash of oil would do the trick...

Returning to finances, I reworked part 1 of the stops page, so it’s available.

A chart of American Airlines (AMR) on the daily scale.

Why are the Dow transports moving up? This chart shows one answer. The figure is a daily chart of American Airlines. Price hit bottom as the price of oil (and presumably jet fuel) reached a high. But for the last few days, oil has plummeted almost $26 a barrel and airline taken off. This stock shows a right-angled and descending broadening formation, highlighted by the red lines.

Three things interest me about this picture. First, the move from A to B qualifies the pattern as a high and tight flag (HTF). That means price has doubled in less than 2 months. Of course the flag portion has not appeared yet, but it will.

Second, this stock is not alone, either. Continental Airlines (CAL) has doubled (another HTF) and JetBlue (JBLU) is almost there, too. All three are in the Dow Transports. A quick check of the airline stocks show many moving up, but not all.

Finally, I highlight what looks like a long legged doji candlestick. The body is not small enough to qualify but it is close enough. With such long shadows, it could also be termed a rickshaw man. Both act as continuation patterns 51% of the time, so they really mean nothing at all except indecision. Go figure.

Trucking stocks are also doing well, and that has helped propel the transports to a 12.4% year-to-date gain.

In case you are interest in the airline stocks, here is a list. You can find other HTFs in the process of forming.

-- Thomas Bulkowski

Symbol Chart Pattern Start End
ALKFlag, high and tight07/15/200807/23/2008
AMRFlag, high and tight07/15/200807/23/2008
CALFlag, high and tight07/15/200807/23/2008
EXPDHead-and-shoulders complex top04/04/200806/05/2008
FDXTriangle, symmetrical04/02/200804/28/2008
JBLUTriangle, symmetrical01/22/200805/05/2008
LUVDouble Top, Adam and Adam06/05/200806/19/2008
UPSTriangle, symmetrical01/30/200802/27/2008

 

Definitions
RS is relative strength (where 1 is best). For others, see the glossary.
’Breakout is upward/downward 100% of the time’ means price breaks out up/down by definition, not by statistically measuring the rate.
All numbers assume a bull market and are based on the breakout direction that occurs most often.
For more information, consult my book, Encyclopedia of Chart Patterns, Second Edition.
 
Alaska Air Group, Inc (ALK)
Industry: Air Transport
Industry RS rank: 42 out of 46
Stock RS rank: 469 out of 562
Latest close as of 07/23/2008: $18.85
1 Month average volatility: $1.55. Volatility based stop (assuming an upward breakout): $14.94 or 20.7% below the close.
Change year to date: -24.63%
Volume: 2,003,400 shares
3 month average volume: 795,782 shares
 
Chart pattern: Flag, high and tight continuation pattern from 07/15/2008 to 07/23/2008
Performance rank: 1 out of 23.
Breakout is upward 100% of the time.
Average rise: 69%.
Throwbacks occur 54% of the time.
Price meets the measure rule target 90% of the time.
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AMR Corporation (AMR)
Industry: Air Transport
Industry RS rank: 42 out of 46
Stock RS rank: 494 out of 562
Latest close as of 07/23/2008: $9.55
1 Month average volatility: $0.77. Volatility based stop (assuming an upward breakout): $7.42 or 22.3% below the close.
Change year to date: -31.93%
Volume: 52,978,100 shares
3 month average volume: 9,191,862 shares
 
Chart pattern: Flag, high and tight continuation pattern from 07/15/2008 to 07/23/2008
WARNING: A dead-cat bounce occurred on 05/22/2008. There is a 26% chance that a 15% or higher decline will occur (or has occurred since then) by 08/21/2008 and a 38% chance by 11/20/2008.
Performance rank: 1 out of 23.
Breakout is upward 100% of the time.
Average rise: 69%.
Throwbacks occur 54% of the time.
Price meets the measure rule target 90% of the time.
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Continental Air, Inc (CAL)
Industry: Air Transport
Industry RS rank: 42 out of 46
Stock RS rank: 542 out of 562
Latest close as of 07/23/2008: $14.80
1 Month average volatility: $1.66. Volatility based stop (assuming an upward breakout): $9.58 or 35.3% below the close.
Change year to date: -33.48%
Volume: 17,181,600 shares
3 month average volume: 4,168,306 shares
 
Chart pattern: Flag, high and tight continuation pattern from 07/15/2008 to 07/23/2008
Performance rank: 1 out of 23.
Breakout is upward 100% of the time.
Average rise: 69%.
Throwbacks occur 54% of the time.
Price meets the measure rule target 90% of the time.
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Expeditors International of Washington (EXPD)
Industry: Air Transport
Industry RS rank: 42 out of 46
Stock RS rank: 424 out of 562
Latest close as of 07/23/2008: $38.72
1 Month average volatility: $1.73. Volatility based stop (assuming a downward breakout): $43.12 or 11.4% above the close.
Change year to date: -13.34%
Volume: 6,672,700 shares
3 month average volume: 1,682,237 shares
Warning: the quarterly earnings announcement is due within the next 3 weeks (but verify to be sure), so consider avoiding a trade.
 
Chart pattern: Head-and-shoulders complex top reversal pattern from 04/04/2008 to 06/05/2008
Performance rank: 3 out of 21.
Breakout is downward 100% of the time.
Average decline: 23%.
Break-even failure rate: 4%.
Pullbacks occur 67% of the time.
Price meets the measure rule target 53% of the time.
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FedEx (FDX)
Industry: Air Transport
Industry RS rank: 42 out of 46
Stock RS rank: 335 out of 562
Latest close as of 07/23/2008: $83.04
1 Month average volatility: $2.64. Volatility based stop (assuming an upward breakout): $75.58 or 9.0% below the close.
Change year to date: -6.87%
Volume: 3,802,700 shares
3 month average volume: 2,665,154 shares
 
Chart pattern: Triangle, symmetrical continuation pattern from 04/02/2008 to 04/28/2008
Performance rank: 16 out of 23.
Breakout is upward 54% of the time.
Average rise: 31%.
Break-even failure rate: 9%.
Throwbacks occur 37% of the time.
Price meets the measure rule target 66% of the time.
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JetBlue Airways Corporation (JBLU)
Industry: Air Transport
Industry RS rank: 42 out of 46
Stock RS rank: 211 out of 562
Latest close as of 07/23/2008: $5.25
1 Month average volatility: $0.32. Volatility based stop (assuming an upward breakout): $4.08 or 22.3% below the close.
Change year to date: -11.02%
Volume: 25,936,400 shares
3 month average volume: 6,654,943 shares
 
Chart pattern: Triangle, symmetrical continuation pattern from 01/22/2008 to 05/05/2008
Performance rank: 16 out of 23.
Breakout is upward 54% of the time.
Average rise: 31%.
Break-even failure rate: 9%.
Throwbacks occur 37% of the time.
Price meets the measure rule target 66% of the time.
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Southwest Airlines Company (LUV)
Industry: Air Transport
Industry RS rank: 42 out of 46
Stock RS rank: 87 out of 562
Latest close as of 07/23/2008: $15.88
1 Month average volatility: $0.67. Volatility based stop (assuming a downward breakout): $17.24 or 8.6% above the close.
Change year to date: 30.16%
Volume: 13,242,700 shares
3 month average volume: 6,556,323 shares
 
Chart pattern: Double Top, Adam and Adam reversal pattern from 06/05/2008 to 06/19/2008
Performance rank: 4 out of 21.
Breakout is downward 100% of the time.
Average decline: 19%.
Break-even failure rate: 8%.
Pullbacks occur 61% of the time.
Price meets the measure rule target 72% of the time.
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United Parcel Service (UPS)
Industry: Air Transport
Industry RS rank: 42 out of 46
Stock RS rank: 394 out of 562
Latest close as of 07/23/2008: $63.40
1 Month average volatility: $1.91. Volatility based stop (assuming an upward breakout): $57.69 or 9.0% below the close.
Change year to date: -10.35%
Volume: 7,172,400 shares
3 month average volume: 4,627,848 shares
 
Chart pattern: Triangle, symmetrical continuation pattern from 01/30/2008 to 02/27/2008
Performance rank: 16 out of 23.
Breakout is upward 54% of the time.
Average rise: 31%.
Break-even failure rate: 9%.
Throwbacks occur 37% of the time.
Price meets the measure rule target 66% of the time.
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Wednesday, 7/23/2008. New Research on Stops.

I released part 2 of my pages on stop placement, but I plan to redo part 1, so put off reading that for a few days. Anyway, part 2 has these findings, from the summary...

###

When buying a stock, how close should you put the stop? If you place it 2 cents below the current low, you will be stopped out almost two-thirds of the time. If you use 2 cents below yesterday’s low, the stop rate drops to 41%. Use the day before that, and you’ll be stopped out once every three trades, on average.

On a percentage basis, you will be stopped out sometime during the coming month almost half the time if the stop is closer than 4% below the breakout price. Place the stop no closer than 8% away and it will protect you 75% of the time.

Half the time it will take 8 days before the stock returns to the breakout price. The study also reveals that using a trailing stop changes a potential loss into a profit if you trail it properly (raise it as price climbs and never lower it).

###

Read the study for a complete review of the findings.

-- Thomas Bulkowski

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Tuesday, 7/22/2008. Dow Poised to Drop!

Nothing exciting happened this weekend. I bought a dozen eggs, the first time in literally years that I spent money for those cholesterol bombs. I made a three egg omelet, stuffed with onions, mushrooms, and broccoli in cheese sauce with a side order of fries. To keep the bad lipids at bay, I usually eat no more than 10 mg of cholesterol each day, but that omelet had over 1,000 mg, with 300 mg being the recommended limit. I’m surprised I didn’t keel over mid way through the meal. Nine more bombs left to go...

A picture of a lizard. Another picture of a lizard.

Yesterday I spotted this lizard on my gazebo railing and snapped a picture. You can tell it is a male because it is puffing out his chin for the ladies, trying to impress them. I’ve been doing that for years, but I haven’t had any luck. He bobs his head several times and then puffs out his chin, holds it for a few seconds, and releases. Then he does it all again. Maybe the ladies are watching from the bleachers because he is the only one I have seen. The picture on the left is him frolicking in the bushes without the extended chin and the right shows his display.

A chart of the Dow industrials (^DJI) on the daily scale.

This is a chart of the Dow industrials on the daily scale. The slide from A was a nice straight-line run down to the bottom at B. The average bounced and climbed almost to the 38% Fibonacci retrace of the AB move (shown as a red line).

Notice that the candles from B to C are getting shorter. That tells me the up move is about done and the average will round over and head back down. My projection for the future movement I show in green. I expect a second bottom to form (D) near the bottom of B.

Even though the chart pattern indicator flashed a bullish signal today for July 17, I am surprised that it took this long to go bullish. I do not trust the signal because a strong decline in the coming days will probably erase it, restoring the bearish signal from June 5. You can get the latest read on the CPI at the top of this page. On my price targets, click on the associated link and a pop-up window explains my reasoning for the number.

-- Thomas Bulkowski

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Monday, 7/21/2008. Let’s go Triple Bottom Fishing!

A chart of La-Z-Boy (LZB) on the daily scale.

I show a chart of La-Z-Boy (LZB) on the daily scale. Notice the three valleys marked 1, 2, and 3. You might think that the three bottoms highlight a triple bottom, but that’s wrong. A triple bottom becomes a valid pattern when price closes above the confirmation price. I show that as a red, horizontal line. The confirmation price is actually the highest peak between the three bottoms.

I went through my database of about 562 stocks and found all unconfirmed triple bottoms, like the one shown, that ended (have a third valley) within the last few days. Although I think the market is going down, many of these will fail as a result. One example would be United Technologies (UTX) from 3/10/2008 to 6/9/2008. If you want to include the January valley as the third valley, that’s fine. Anyway, price formed the third bottom and then started climbing for a week or two and then turned lower, busting through support and tumbling.

Here is the list of about 20 stocks with potential triple bottoms. I am not advocating buying any one of them, but I give you the list so you can start your own research. Unfortunately, the program that builds this list uses the starting date of the most recent pattern instead of the ending date, so many of the triple bottoms are not highlighted (because they began months ago and are not the most recent). All of the ones selected have a third bottom on or after July 15.

-- Thomas Bulkowski

Symbol Chart Pattern Start End
ACMRPipe bottom04/07/200804/14/2008
AEEHead-and-shoulders top04/18/200805/13/2008
CHRSPipe top01/28/200802/04/2008
CNWTriangle, symmetrical05/14/200806/18/2008
CPNOPipe bottom03/17/200803/24/2008
XRAYTriple bottom04/24/200807/15/2008
HRSTriple bottom01/23/200807/15/2008
ITWHead-and-shoulders top05/02/200805/30/2008
JCOMTriple bottom03/11/200807/15/2008
JNYDouble Bottom, Eve and Eve03/10/200803/17/2008
KSSHead-and-shoulders top03/24/200806/05/2008
LZBTriple bottom05/09/200807/15/2008
LTDTriangle, ascending04/25/200805/29/2008
LMTBroadening wedge, descending06/10/200807/09/2008
MUDouble Top, Eve and Eve02/05/200802/27/2008
NITriangle, descending04/11/200806/05/2008
PNWTriple bottom06/30/200807/17/2008
PORHead-and-shoulders top04/18/200805/21/2008
PHMBroadening top, right-angled and ascending04/23/200805/20/2008
SCHWTriple top05/02/200806/17/2008
UNTDTriple bottom03/07/200807/15/2008
XELFalling wedge05/29/200806/12/2008

 

Definitions
RS is relative strength (where 1 is best). For others, see the glossary.
’Breakout is upward/downward 100% of the time’ means price breaks out up/down by definition, not by statistically measuring the rate.
All numbers assume a bull market and are based on the breakout direction that occurs most often.
For more information, consult my book, Encyclopedia of Chart Patterns, Second Edition.
 
AC Moore Arts and Crafts (ACMR)
Industry: Retail (Special Lines)
WARNING: This industry is within the top 7 that Dead-cat bounce often.
Industry RS rank: 11 out of 46
Stock RS rank: 513 out of 562
Latest close as of 07/18/2008: $6.77
1 Month average volatility: $0.61. Volatility based stop (assuming an upward breakout): $5.35 or 21.0% below the close.
Change year to date: -50.76%
Volume: 162,500 shares
3 month average volume: 254,400 shares
 
Chart pattern: Pipe bottom reversal pattern from 04/07/2008 to 04/14/2008
WARNING: A dead-cat bounce occurred on 02/20/2008. There is a 38% chance that a 15% or higher decline will occur (or has occurred since then) by 08/20/2008.
Performance rank: 2 out of 23.
Breakout is upward 100% of the time.
Average rise: 45%.
Break-even failure rate: 5%.
Throwbacks occur 44% of the time.
Price meets the measure rule target 83% of the time.
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Ameren (AEE)
Industry: Electric Utility (Central)
Industry RS rank: 30 out of 46
Stock RS rank: 440 out of 562
Latest close as of 07/18/2008: $40.45
1 Month average volatility: $0.75. Volatility based stop (assuming a downward breakout): $42.38 or 4.8% above the close.
Change year to date: -25.38%
Volume: 1,376,100 shares
3 month average volume: 1,122,988 shares
Warning: the quarterly earnings announcement is due within the next 3 weeks (but verify to be sure), so consider avoiding a trade.
 
Chart pattern: Head-and-shoulders top reversal pattern from 04/18/2008 to 05/13/2008
Performance rank: 1 out of 21.
Breakout is downward 100% of the time.
Average decline: 22%.
Break-even failure rate: 4%.
Pullbacks occur 50% of the time.
Price meets the measure rule target 55% of the time.
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Charming Shoppes Inc. (CHRS)
Industry: Retail (Special Lines)
WARNING: This industry is within the top 7 that Dead-cat bounce often.
Industry RS rank: 11 out of 46
Stock RS rank: 294 out of 562
Latest close as of 07/18/2008: $4.92
1 Month average volatility: $0.46. Volatility based stop (assuming a downward breakout): $6.11 or 24.2% above the close.
Change year to date: -9.06%
Volume: 1,564,200 shares
3 month average volume: 2,540,466 shares
 
Chart pattern: Pipe top reversal pattern from 01/28/2008 to 02/04/2008
Performance rank: 4 out of 21.
Breakout is downward 100% of the time.
Average decline: 20%.
Break-even failure rate: 11%.
Pullbacks occur 41% of the time.
Price meets the measure rule target 70% of the time.
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Con-way Inc. (CNW)
Industry: Trucking/Transp. Leasing
Industry RS rank: 1 out of 46
Stock RS rank: 89 out of 562
Latest close as of 07/18/2008: $51.62
1 Month average volatility: $2.03. Volatility based stop (assuming an upward breakout): $46.73 or 9.5% below the close.
Change year to date: 24.27%
Volume: 1,161,900 shares
3 month average volume: 918,758 shares
 
Chart pattern: Triangle, symmetrical continuation pattern from 05/14/2008 to 06/18/2008
Performance rank: 16 out of 23.
Breakout is upward 54% of the time.
Average rise: 31%.
Break-even failure rate: 9%.
Throwbacks occur 37% of the time.
Price meets the measure rule target 66% of the time.
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Copano Energy LLC (CPNO)
Industry: Natural Gas (Distributor)
Industry RS rank: 21 out of 46
Stock RS rank: 361 out of 562
Latest close as of 07/18/2008: $32.25
1 Month average volatility: $1.10. Volatility based stop (assuming an upward breakout): $29.19 or 9.5% below the close.
Change year to date: -9.97%
Volume: 108,500 shares
3 month average volume: 213,705 shares
Warning: the quarterly earnings announcement is due within the next 3 weeks (but verify to be sure), so consider avoiding a trade.
 
Chart pattern: Pipe bottom reversal pattern from 03/17/2008 to 03/24/2008
Performance rank: 2 out of 23.
Breakout is upward 100% of the time.
Average rise: 45%.
Break-even failure rate: 5%.
Throwbacks occur 44% of the time.
Price meets the measure rule target 83% of the time.
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Dentsply International, Inc. (XRAY)
Industry: Medical Supplies
Industry RS rank: 28 out of 46
Stock RS rank: 410 out of 562
Latest close as of 07/18/2008: $39.76
1 Month average volatility: $0.95. Volatility based stop (assuming an upward breakout): $37.12 or 6.6% below the close.
Change year to date: -11.68%
Volume: 1,218,200 shares
3 month average volume: 1,082,817 shares
Warning: the quarterly earnings announcement is due within the next 3 weeks (but verify to be sure), so consider avoiding a trade.
 
Chart pattern: Triple bottom reversal pattern from 04/24/2008 to 07/15/2008
Performance rank: 7 out of 23.
Breakout is upward 100% of the time.
Average rise: 37%.
Break-even failure rate: 4%.
Throwbacks occur 64% of the time.
Price meets the measure rule target 64% of the time.
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Harris Corp (HRS)
Industry: Telecom. Equipment
Industry RS rank: 27 out of 46
Stock RS rank: 269 out of 562
Latest close as of 07/18/2008: $50.24
1 Month average volatility: $1.59. Volatility based stop (assuming an upward breakout): $46.38 or 7.7% below the close.
Change year to date: -19.85%
Volume: 863,700 shares
3 month average volume: 1,044,688 shares
Warning: the quarterly earnings announcement is due within the next 3 weeks (but verify to be sure), so consider avoiding a trade.
 
Chart pattern: Triple bottom reversal pattern from 01/23/2008 to 07/15/2008
Performance rank: 7 out of 23.
Breakout is upward 100% of the time.
Average rise: 37%.
Break-even failure rate: 4%.
Throwbacks occur 64% of the time.
Price meets the measure rule target 64% of the time.
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Illinois Tool Works Inc. (ITW)
Industry: Metal Fabricating
Industry RS rank: 25 out of 46
Stock RS rank: 289 out of 562
Latest close as of 07/18/2008: $46.73
1 Month average volatility: $1.22. Volatility based stop (assuming a downward breakout): $49.82 or 6.6% above the close.
Change year to date: -12.72%
Volume: 3,205,200 shares
3 month average volume: 2,883,552 shares
 
Chart pattern: Head-and-shoulders top reversal pattern from 05/02/2008 to 05/30/2008
Performance rank: 1 out of 21.
Breakout is downward 100% of the time.
Average decline: 22%.
Break-even failure rate: 4%.
Pullbacks occur 50% of the time.
Price meets the measure rule target 55% of the time.
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J2 Global Communications Inc. (JCOM)
Industry: Internet
WARNING: This industry is within the top 7 that Dead-cat bounce often.
Industry RS rank: 38 out of 46
Stock RS rank: 150 out of 562
Latest close as of 07/18/2008: $22.85
1 Month average volatility: $1.10. Volatility based stop (assuming an upward breakout): $20.16 or 11.8% below the close.
Change year to date: 7.94%
Volume: 295,000 shares
3 month average volume: 571,385 shares
 
Chart pattern: Triple bottom reversal pattern from 03/11/2008 to 07/15/2008
Performance rank: 7 out of 23.
Breakout is upward 100% of the time.
Average rise: 37%.
Break-even failure rate: 4%.
Throwbacks occur 64% of the time.
Price meets the measure rule target 64% of the time.
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Jones Apparel Group (JNY)
Industry: Apparel
Industry RS rank: 17 out of 46
Stock RS rank: 170 out of 562
Latest close as of 07/18/2008: $14.98
1 Month average volatility: $0.73. Volatility based stop (assuming an upward breakout): $13.01 or 13.2% below the close.
Change year to date: -6.32%
Volume: 2,888,700 shares
3 month average volume: 2,083,743 shares
Warning: the quarterly earnings announcement is due within the next 3 weeks (but verify to be sure), so consider avoiding a trade.
 
Chart pattern: Double Bottom, Eve and Eve reversal pattern from 03/10/2008 to 03/17/2008
Performance rank: 6 out of 23.
Breakout is upward 100% of the time.
Average rise: 40%.
Break-even failure rate: 4%.
Throwbacks occur 55% of the time.
Price meets the measure rule target 67% of the time.
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Kohls Corporation (KSS)
Industry: Retail Store
Industry RS rank: 14 out of 46
Stock RS rank: 205 out of 562
Latest close as of 07/18/2008: $42.94
1 Month average volatility: $2.18. Volatility based stop (assuming a downward breakout): $48.29 or 12.5% above the close.
Change year to date: -6.24%
Volume: 8,180,400 shares
3 month average volume: 5,748,502 shares
 
Chart pattern: Head-and-shoulders top reversal pattern from 03/24/2008 to 06/05/2008
Performance rank: 1 out of 21.
Breakout is downward 100% of the time.
Average decline: 22%.
Break-even failure rate: 4%.
Pullbacks occur 50% of the time.
Price meets the measure rule target 55% of the time.
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La-Z-Boy Inc (LZB)
Industry: Furn/Home Furnishings
Industry RS rank: 39 out of 46
Stock RS rank: 271 out of 562
Latest close as of 07/18/2008: $7.03
1 Month average volatility: $0.50. Volatility based stop (assuming an upward breakout): $5.83 or 17.1% below the close.
Change year to date: -11.35%
Volume: 211,600 shares
3 month average volume: 507,240 shares
 
Chart pattern: Triple bottom reversal pattern from 05/09/2008 to 07/15/2008
Performance rank: 7 out of 23.
Breakout is upward 100% of the time.
Average rise: 37%.
Break-even failure rate: 4%.
Throwbacks occur 64% of the time.
Price meets the measure rule target 64% of the time.
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Limited Brands, Inc. (LTD)
Industry: Apparel
Industry RS rank: 17 out of 46
Stock RS rank: 257 out of 562
Latest close as of 07/18/2008: $16.38
1 Month average volatility: $0.77. Volatility based stop (assuming an upward breakout): $14.44 or 11.8% below the close.
Change year to date: -13.47%
Volume: 4,657,000 shares
3 month average volume: 5,764,900 shares
 
Chart pattern: Triangle, ascending reversal pattern from 04/25/2008 to 05/29/2008
Performance rank: 17 out of 23.
Breakout is upward 70% of the time.
Average rise: 35%.
Break-even failure rate: 13%.
Throwbacks occur 57% of the time.
Price meets the measure rule target 75% of the time.
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Lockheed Martin Corp (LMT)
Industry: Aerospace/Defense
Industry RS rank: 34 out of 46
Stock RS rank: 303 out of 562
Latest close as of 07/18/2008: $100.99
1 Month average volatility: $2.22. Volatility based stop (assuming an upward breakout): $95.31 or 5.6% below the close.
Change year to date: -4.06%
Volume: 2,327,400 shares
This security may be thinly traded (less than 100,000 shares)!
 
Chart pattern: Broadening wedge, descending reversal pattern from 06/10/2008 to 07/09/2008
Performance rank: 12 out of 23.
Breakout is upward 79% of the time.
Average rise: 33%.
Break-even failure rate: 6%.
Throwbacks occur 53% of the time.
Price meets the measure rule target 79% of the time.
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Micron Technology (MU)
Industry: Semiconductor
WARNING: This industry is within the top 7 that Dead-cat bounce often.
Industry RS rank: 37 out of 46
Stock RS rank: 353 out of 562
Latest close as of 07/18/2008: $5.70
1 Month average volatility: $0.37. Volatility based stop (assuming a downward breakout): $6.49 or 13.9% above the close.
Change year to date: -21.38%
Volume: 19,274,600 shares
3 month average volume: 17,537,546 shares
 
Chart pattern: Double Top, Eve and Eve reversal pattern from 02/05/2008 to 02/27/2008
Performance rank: 2 out of 21.
Breakout is downward 100% of the time.
Average decline: 18%.
Break-even failure rate: 11%.
Pullbacks occur 59% of the time.
Price meets the measure rule target 73% of the time.
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Nisource Inc. (NI)
Industry: Electric Utility (Central)
Industry RS rank: 30 out of 46
Stock RS rank: 350 out of 562
Latest close as of 07/18/2008: $17.18
1 Month average volatility: $0.40. Volatility based stop (assuming a downward breakout): $18.27 or 6.3% above the close.
Change year to date: -9.05%
Volume: 2,608,200 shares
3 month average volume: 2,096,200 shares
Warning: the quarterly earnings announcement is due within the next 3 weeks (but verify to be sure), so consider avoiding a trade.
 
Chart pattern: Triangle, descending reversal pattern from 04/11/2008 to 06/05/2008
Performance rank: 10 out of 21.
Breakout is downward 64% of the time.
Average decline: 16%.
Break-even failure rate: 16%.
Pullbacks occur 54% of the time.
Price meets the measure rule target 54% of the time.
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Pinnacle West Capital Corp (PNW)
Industry: Electric Utility (West)
Industry RS rank: 36 out of 46
Stock RS rank: 473 out of 562
Latest close as of 07/18/2008: $31.43
1 Month average volatility: $0.68. Volatility based stop (assuming an upward breakout): $29.69 or 5.5% below the close.
Change year to date: -25.89%
Volume: 723,700 shares
This security may be thinly traded (less than 100,000 shares)!
 
Chart pattern: Triple bottom reversal pattern from 06/30/2008 to 07/17/2008
Performance rank: 7 out of 23.
Breakout is upward 100% of the time.
Average rise: 37%.
Break-even failure rate: 4%.
Throwbacks occur 64% of the time.
Price meets the measure rule target 64% of the time.
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Portland General Electric Co. (POR)
Industry: Electric Utility (West)
Industry RS rank: 36 out of 46
Stock RS rank: 380 out of 562
Latest close as of 07/18/2008: $22.56
1 Month average volatility: $0.51. Volatility based stop (assuming a downward breakout): $23.87 or 5.8% above the close.
Change year to date: -18.79%
Volume: 280,500 shares
3 month average volume: 414,880 shares
Warning: the quarterly earnings announcement is due within the next 3 weeks (but verify to be sure), so consider avoiding a trade.
 
Chart pattern: Head-and-shoulders top reversal pattern from 04/18/2008 to 05/21/2008
Performance rank: 1 out of 21.
Breakout is downward 100% of the time.
Average decline: 22%.
Break-even failure rate: 4%.
Pullbacks occur 50% of the time.
Price meets the measure rule target 55% of the time.
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Pulte Homes Inc. (PHM)
Industry: Homebuilding
Industry RS rank: 15 out of 46
Stock RS rank: 140 out of 562
Latest close as of 07/18/2008: $11.38
1 Month average volatility: $0.93. Volatility based stop (assuming a downward breakout): $13.73 or 20.6% above the close.
Change year to date: 7.97%
Volume: 9,745,700 shares
3 month average volume: 7,497,622 shares
 
Chart pattern: Broadening top, right-angled and ascending reversal pattern from 04/23/2008 to 05/20/2008
Performance rank: 19 out of 21.
Breakout is downward 66% of the time.
Average decline: 15%.
Break-even failure rate: 20%.
Pullbacks occur 65% of the time.
Price meets the measure rule target 32% of the time.
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Schwab, Charles Corporation (SCHW)
Industry: Securities Brokerage
Industry RS rank: 46 out of 46
Stock RS rank: 262 out of 562
Latest close as of 07/18/2008: $22.64
1 Month average volatility: $1.08. Volatility based stop (assuming a downward breakout): $25.13 or 11.0% above the close.
Change year to date: -11.39%
Volume: 10,476,100 shares
3 month average volume: 14,527,309 shares
 
Chart pattern: Triple top reversal pattern from 05/02/2008 to 06/17/2008
Performance rank: 7 out of 21.
Breakout is downward 100% of the time.
Average decline: 19%.
Break-even failure rate: 10%.
Pullbacks occur 61% of the time.
Price meets the measure rule target 40% of the time.
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United Online (UNTD)
Industry: Internet
WARNING: This industry is within the top 7 that Dead-cat bounce often.
Industry RS rank: 38 out of 46
Stock RS rank: 306 out of 562
Latest close as of 07/18/2008: $10.45
1 Month average volatility: $0.50. Volatility based stop (assuming an upward breakout): $9.16 or 12.3% below the close.
Change year to date: -11.59%
Volume: 637,700 shares
3 month average volume: 1,136,422 shares
Warning: the quarterly earnings announcement is due within the next 3 weeks (but verify to be sure), so consider avoiding a trade.
 
Chart pattern: Triple bottom reversal pattern from 03/07/2008 to 07/15/2008
Performance rank: 7 out of 23.
Breakout is upward 100% of the time.
Average rise: 37%.
Break-even failure rate: 4%.
Throwbacks occur 64% of the time.
Price meets the measure rule target 64% of the time.
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Xcel Energy, Inc (XEL)
Industry: Electric Utility (West)
Industry RS rank: 36 out of 46
Stock RS rank: 372 out of 562
Latest close as of 07/18/2008: $19.94
1 Month average volatility: $0.43. Volatility based stop (assuming an upward breakout): $18.66 or 6.4% below the close.
Change year to date: -11.65%
Volume: 2,570,600 shares
3 month average volume: 3,055,974 shares
 
Chart pattern: Falling wedge from 05/29/2008 to 06/12/2008
Performance rank: 20 out of 23.
Breakout is upward 68% of the time.
Average rise: 32%.
Break-even failure rate: 11%.
Throwbacks occur 56% of the time.
Price meets the measure rule target 70% of the time.
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Thursday, 7/17/2008. VRTX High and Tight Flag

It’s mid month so it’s time to rotate your mattress. That is what they told me when I bought the thing a few years ago. "Rotate it every two weeks and flip it monthly for the first three months," they said. "And once a year, rotate the box spring." But I have kept flipping and rotating the thing ever since.

I am trying a bold experiment today. I hung my wash out to dry to see if it causes rain.

Today’s chart is of Vertex Pharmaceuticals (VRTX), one we have seen before. The image shows a high and tight flag (HTF). To review, price must climb at least 90% in 2 months or less, but shoot for at least a double. Then price should move sideways. In a huge number of cases, that will be the end of the pattern because price drops from there. For VRTX, the stock hit a low at A, 13.84, and climbed to B, reaching a high of 26.55 in less than 2 months. Price then formed the flag. In the posting, I said that if price closed above B, then that would be the buy signal.

The buy order came when price closed at 27, at point C. Two days later, at D, price reached a low of 23.75, stopping out many that placed a stop below the congestion region (the flag). The lowest low between B and C was 24.88, so a good stop location would have been 24.83 (an odd number). A volatility stop would have been 23.91, and that would have taken you out of the trade near the bottom. Oops.

The stock continued to move sideways after D and then began moving up, eventually reaching a high of 35 on July 9. From the buy price of 26.56 (which is where my buy stop would have been had I traded the stock), the gain was 32%, so far that is. Of course, that may be a best case result since the buy is a penny above B and the high is the exact high so far. If you placed a buy order at the open the day after price closed above B (meaning the day after C), then the entry price was 27.30, for a gain of 28%, which is still not bad. The BCD pattern, if you connected the peaks and valleys, would look like a broadening top chart pattern. If you extended it into the future, you can make a diamond top, which I show.

-- Thomas Bulkowski

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Wednesday, 7/16/2008. Is the S&P 500 at a Turning Point?

A monthly chart of the S and P 500 index (^GSPC).

Today’s excitement centered around sucking up a Kleenex with my vacuum cleaner. I’m a cheap date because I entertain so easily. That giant sucking sound you hear is not the economy going down the tubes, but me playing with my Dyson.

It was just last week that I showed a chart of the S&P 500 but I show it again. Why? Because it has reached my price target of 1,200 (today’s low was 1,200.44, which is close enough for government work, as they say). Where does the market go now? I show the S&P on the monthly scale but this is a zoom in on the one posted a week ago.

I show three areas of support, circled. It could be that the index has reached a bottom today. The candle’s lower shadow on the daily chart shows a long downward spike, suggesting a continued upward recovery off the 1200 low tomorrow. I think that is likely, but a longer term view does not show the index turning. Support at C will help the market turn upward here. If that fails to hold then two more areas, A and B are standing by like waiters at a fine restaurant, ready to lend support. The peaks touch or come close to the top red line and the bottom line corresponds to valleys in 2001 and 2004. The index could reverse anywhere between those lines.

If the index does not turn here, then my next target is 1,100. I show that with a magenta line. Posted on Tuesday at 7:09 pm.

-- Thomas Bulkowski

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Tuesday, 7/15/2008. 8 Ways to Detect a Bottom

1-2-3 trend change method for downward trends

The first method is what I call the 1-2-3 trend change method, created by Victor Sperandeo and discussed in his book, Trader Vic: Methods of a Wall Street Master. You can refer to my link for the details for both up and down trends, but the gist of it goes like this...

1. 1-2-3 Trend Change

Draw a trendline from the highest high (Point C in the figure) to the lowest low (A) on the chart such that price does not cross the trendline until after the lowest low (point 1), then follow these steps.

  • Step 1: Find where price closes above a down-sloping trendline. This is shown in the chart as point 1 and a trendline pierce is the first indication of a trend change.
  • Step 2: Price tests a recent low. The recent low is at point A and the test is at point 2. Point 2 can be below point A but it must be clear that price is moving up, not continuing down.
  • Step 3: Price closes above a recent high. I show the high as point B and price completes the 1-2-3 trend change method when it rises above B at point 3. The high (point B) should be between points A and 2.

In a study I conducted of this method, 73% of the time (74 of 101 samples) price climbed at least 20% from the low, confirming a trend change. In other words, the method detected a bottom. As with any technique, it is not foolproof because fools are so inventive. Here are additional tips.

2. A Higher Bottom

Ugly double bottom chart pattern

A market bottom can come in a variety of shapes. There is the V-shaped recovery that appeared in the 1929 crash, but the market continued lower after April 1930, and the events of 9-11 also progressed as a V-shaped recovery. The bear market of 2000 to 2002 ended in a complex bottom that took the shape of a head-and-shoulders bottom. Then there was the crash of 1987 that formed an ugly double bottom.

In all market bottoms and whenever a stock turns, it has to make a higher bottom sooner or later. If you switch to the weekly scale and see that price is continuing to make lower lows, then you have not reached the bottom yet. Eventually, though, an ugly double bottom appears similar to the chart with point 2 above point 1. You may see it on the weekly chart or on the daily. On the monthly chart, it may look V-shaped, but even there you can often see a spike low where the higher bottom occurred. So, look for a higher bottom and some would say, a higher peak, too. If you practice the 1-2-3 trend change method, then this step is already covered. The point is, you must have a higher bottom before the market can turn from bear to bull.

3. CPI is Bullish

Look at the chart pattern indicator. The current market flavor of the indicator is also listed at the top of this page, in the right box, and shown as CPI. If the signal is bullish does that mean a market bottom? No. Wait a week (and the charts in the associated link are updated weekly, the above box is updated daily). If the signal is still bullish a week later, then the chances improve that this is a bottom. The bottom might not last long, but it is an indication that a minor low has formed and it may become a major low.

4. Chart Patterns

In the FAQ, I answered a question about the S&P bottoming. I said that on the way down, bullish chart patterns disappear. For example, you do not see a double bottom confirming (price rising above the peak between the two bottoms) when a stock continues making new lows. When the market bottoms, bullish chart patterns appear, but that is not the time to buy. Those patterns will have upward breakouts, sure, but many will fail soon after when price reverses (heads back down). The market has not begun trending, and it is a dangerous time to trade. Bad news pushes the market lower, almost daily.

Eventually, price will level out. You will see many basing patterns, such as rectangles. Bad news that used to drive the market down by hundreds of points in a single day hardly budges it now. You will see many bullish chart patterns forming, as if individual issues are just begging to move higher, but there is still some hesitation. Those chart patterns with upward breakouts will have price continuing to rise in a nervous stair step move. Before, one low followed another, but now, price makes higher valleys and higher peaks in many securities. That is the time to buy.

Remember that the market looks ahead six months, so even though you hear bad news, the market may move up anyway, shrugging off the news and bursting upward on good news.

5. You Feel Like Selling Everything!

If you feel so disgusted with the performance of your stock portfolio that you begin to sell everything, then you are probably within a week or two of the bottom. Why? Because others feel the same way. And when everyone decides to sell, they make one big splash, often forcing the index down hundreds of points in a nice spike on high volume. When selling pressure eases, buying demand takes over and prices move up, leaving a bottom and a bear market behind.

The problem with this one is when you know you are close to a bottom, so you decide to hold on. Everyone else feels the same way, so no "SELL EVERYTHING NOW!" takes place, and the market does not drop 500 points in a session, but continues the daily slide. Thus, you either sell near the bottom or hold and see your losses mount. You can’t win.

6. High Volume Bottom

Unusually high volume at or near a price bottom can signal a market turning point. Why? Read the last item. If everyone is so upset with the performance of their stock holdings that they tell their brokers to cash them out of the market, then this type of selling signals a bottom and you will see that it occurs on high volume. The volume need not be a spike (although it often is, especially if price drops a lot) but should be unusually high surrounding a price turning point. In other words, the volume has to represent panic selling, desperation on the part of the sellers to get clear of a falling market.

7. Bad News Moves Nothing

Each week, economic reports come out, but some are more important than others. If the report is bad and the market either drops little or even climbs, then the market may be ready to make a sustained advance. You will want to watch the reaction of several reports, just to be sure that bad news is no longer depressing the market.

It is probably like feeling you should commit suicide. Your wife has left you. You lost your job. Then the bills come and you see one from the IRS. You may even laugh and ask if it can get any worse that this? Even the envelope from publisher’s clearing house announcing "You may be a winner" gets a yawn.

Imagine if you did win the sweepstakes or lottery. You wouldn’t need a job. You could pay off the IRS, and lovely women will be dripping off your arms (or so the male fantasy goes). I would like to be rich enough to test out that last one, but I guess I’m not there yet... If bad news fails to drop the market by hundreds of points, then the bottom is near.

8. Good News Lifts the Market

If bad news has little effect on a falling market, then good news should lift it. This is probably like closing your eyes just before a car crash only to open them and discover it didn’t occur. That actually happened to me once.

I was leaving the company parking lot and driving up a small hill. At the top of the hill is a stoplight at an intersection. From the other driver’s perspective, the evening sun sets directly behind the stoplight, blinding him to the signal. I saw that the light was green and hit the gas, powering up the hill and through the intersection (but not speeding, mind you. I don’t do that). Anyway, the driver to my left blew right through the intersection. He should have broad sided me and killed me instantly, or at least broke lots of things, including a car, but it just didn’t happen. And I can’t figure out why. No squealing tires (like he stopped in time) or honking horn or anything accompanied the event. We just missed each other.

I guess God wanted to read more about Chart Patterns, too!

-- Thomas Bulkowski

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Monday, 7/14/2008. Avoid ATW Throwback

The chart of the Atwood Oceanics (ATW) on the daily scale.

Before I discuss the chart, let me mention a few things. First, on my bike ride Saturday I could not believe the traffic! I chose to ride on the weekend, thinking that few people would be out trying to run me down, but I was wrong. There was more traffic than on a weekday even as gas prices reach new highs.

A normal turtle. A flat turtle

Second, on the way back, I rode through the local park and there he was! Imagine what a "normal" turtle looks like (the left image is an example), but this one was a dinner place with legs! The last time I saw him (maybe it’s a her) was about a month ago. What surprises me about this turtle is he is not bowl shaped but flat, as if he had been run over by a car one too many times. The image on the right is similar to the turtle I saw, but looking down from the top and he would appear elliptical and gray.

I released a book review of Ed Ponsi’s Forex Patterns & Probabilities. I like the book so much that I placed it on my favorite book list. You can read my review here, which is not as much of a book review as it is a list of the interesting things I found. For example, near the end of the book (and at the end of my review), he goes through the math of proving that the probably of making money shooting for a 10 pip win is about 2 to 1 against. If you shoot for a more profitable trade, 100 pips, the odds drop to almost 50-50. In other words, go for a homerun and not singles.

Lastly, I will be making a change to the model portfolios . I am not happy with the large draw downs that both suffer, so I will be adjusting the parameters. One observant reader of this blog reported that the text said a sale of the industry relative strength stocks would occur when the rank dropped to 15 or below and yet they were not. It should have read 40, and not 15. I am thinking of changing it to buy at rank 3, sell at rank 5, and buy 3 stocks at a time.

The stock chart is an updated version of one we have seen before. The last time was on July 1, when I complained of missing the breakout. I was excited Friday when I updated my stocks. Atwood had completed a throwback and was now moving up. Yippee! Time to buy! Wrong. A check of other stocks in the industry show that 11 have topped out and are now pulling back to the base of a recent top. The other 3, including Atwood, are moving higher. That tells me Atwood will rise but not for long, so I put my money back in my wallet.

-- Thomas Bulkowski

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Thursday, 7/10/2008. Busted Pattern Trading Setup

A chart of Temper-pedic (TXP) on the daily scale.

A few of you suggested that Norton Ghost provided a reliable alternative to the backup drive situation I discussed yesterday. Thanks for the tip.

I reviewed all of the securities that I followed and one thing you can say, is that stocks are suffering. Many are making new yearly lows. Those that breakout upward are short lived with price reversing as quickly as the market. What patterns work best now?

The chart of Temper-pedic (TXP) on the daily scale gives a hint. Notice that the overall trend of that stock is downward. As the top of this page shows, many of the major indices are also down for the year. Thus, you want to trade with the trend -- bearish -- and not fight the tape.

One unusual way to do that is to hunt for busted chart patterns. I define a busted pattern as one in which the breakout is in one direction then it reverses and breaks out in the other direction. This often happens quickly, a week or two, executing either a throwback or a pullback and continuing on. The chart shows an example. Price breaks out upward from the symmetrical triangle and then throws back to the top of the pattern. In this example, price continues lower, busting the pattern when it breaks out downward, below the bottom formation trendline. Let me add here that symmetrical triangles are notorious for double busting. That means price breaks out in one direction, reverses and breaks out in the new direction, and then reverses again, only to climb in a straight line run in the original breakout direction. They are more risky than the other triangles (ascending and descending). Buyer beware!

Whether price busts upward or downward the resulting run is often a good one. Few traders look for these situations, so they tend to work well. My book, Getting Started in Chart Patterns is the only one of mine that discusses busted patterns. I dedicate chapter 9 to the subject, starting on page 215.

Returning to the chart, there are some hints that the breakout will be downward. You might think that since price is moving downward, a downward breakout is more likely. I looked at that setup and found it’s wrong. In a bear market, downward breakouts act as reversals in 139 cases and continuation patterns in 125 cases. The chart shows a reversal pattern by my definition. Why? Because price is trending downward into the pattern and the breakout is upward. Yes, the upward breakout does not last long but it is still upward.

Regardless, the dead-cat bounce is a huge hint that price will move lower. That’s because it takes companies that experience operational problems lots of time to fix their problems. For example, if no one is buying SUVs, what can you do? Building a small car to replace it will take a few years, and the profits from the compacts will not make up for the huge margins the company made from people buying the SUVs in the first place. Thus, you can expect lower earnings in the future. In short, one dead cat bounce often follows another. I measured this and found that another 15% or higher correction occurs 26% of the time within 3 months and 38% of the time within 6 months.

Judging by today’s drop of 236 points in the Dow, the market has not found its bottom, so don’t be a hero and try to bottom fish yet. Any chart pattern breaking out upward is likely to fail when the market drops. Use protective puts on existing positions, maybe covered calls, stay in cash, or go short selected issues. The bottom will come one day, maybe tomorrow, but I do not see that happening yet.

-- Thomas Bulkowski

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Wednesday, 7/9/2008. Your Computer Crashes. Now What?

When I powered up my Internet computer on Sunday, it kept rebooting, unable to finish loading the operating system for some mysterious reason. How did I get it working and what steps can you take now to prepare for a computer crash? This blog entry answers those questions. The following tips pertain to Windows XP and not Vista, but maybe they will work there, too.

Steps to Take Before the Crash

First, let’s discuss the various things you should do now, before the crash.

  1. Have a system backup available.

    I know, you have heard this a million times before. Backing up your system (I do it weekly) is easy. Go to Wal-Mart and buy yourself an external hard drive. For newer computers, it plugs into the USB port and the drive costs about $1 a gigabyte. Make sure that the drive is at least as large as the drive in your computer, otherwise, the information won’t fit onto the new drive. The drive should have a firewire or USB cable to connect to your computer, and make sure your computer has one of those ports (firewire or USB) available.

    The drive should come with some type of backup software to run the thing. Both of my Seagate drives (80 GB and 120 GB) came with Bounceback Express. The Bounceback software will store your information onto the backup drive but you won’t be able to boot up from it. Think of Bounceback Express as the amateur’s variety of backup software. For the real stuff, you need to upgrade to Bounceback Pro and buy their Rescue CD.

    The Rescue CD is suppose to copy the hard drive image from the external drive onto the internal drive. I say supposed to because when I needed it about a year ago, the $%^* thing did not work. I spent a week on the phone with the Bounceback people trying to figure out my problem, without luck. I finally just reformatted the hard drive and reinstalled the software. That process took a day, including the numerous patches applied to the Windows software.

    What I like about weekly backups and an external drive, is you disconnect them from the system and put them somewhere else in your house. Thus, if your computer catches fire, you still have a backup with your data ready to go. And the software will remind you to perform the weekly backup. If you need to look at a file you deleted or changed, then you can just plug in your backup drive, access the old version, and away you go. I’ve needed to do that many times. It is worth having even if you cannot boot from it or even if you cannot restore a dead drive from it.

  2. Scan your hard drive for errors or a corrupt operating system.

    Depending on the size and number of hard drives, this could take a long time (1/2 hour or longer for my 40gb drive).

    • Click the Start button
    • Click My Computer
    • When you see "Local Disk C:" appear, right mouse click on it
    • Click Properties
    • Click the Tools tab
    • Click the Check now button
    • Check both boxes, automatically fix file system errors and scan for and attempt recovery of bad sectors.
    • You will see an message appear that says this will need to be run at boot time. Answer yes, that you want to schedule it to run. When it returns to the tools menu...

    • Click the Defragment Now box.
    • Click Analyze.

    The system will check to see if your drive needs to be defragmented or not. Defrag it if necessary. Fragmentation occurs when the file you are saving is larger than the space available. The operating system splits the file into smaller pieces and saves the information where it can on your drive. Defragmenting the file glues the pieces back together and lays them down in space large enough to contain the entire file without splitting it up. After defragmenting, you may notice a quicker response time.

    After you reboot your computer, the system will begin scanning your drive. This is the same as running chkdsk /f in the old MSDOS days. Pay attention and look for errors. If you see back sectors appear as a warning message, then consider buying a new drive. You need not have to install it, but when errors appear, it has been my experience that the drive is about to stop working. You may have another 6 months before it dies completely

  3. Put down a system restore point.
    • Click Start
    • Click Help and Support
    • Click Undo changes to your computer with System Restore
    • Click Create a restore point and follow the instructions.

    When you install new software, a restore point is automatically created. However, if your computer is working fine today, then you might want to note that with a restore point. If your computer runs into problems, you can restore your computer by selecting an earlier restore point. If you don't have a point to restore to, you’re out of luck. So check to see if you have a recent restore point. This will be especially true if you use services.msc or msconfig.exe to turn off drivers. You may inadvertently turn off system restore.

  4. Msconfig.exe and Services.msc
  5. These two programs do the same thing: they allow you to turn off software that you don’t use. For example, if you have a computer without a printer, then why should you run the print spooler that controls printing? Turn it off. I don't use audio on my system, so I turned off Windows audio and only enable it when needed. About half the drivers that could be loaded on my system are turned off.

    How do you use the software tools? They are self explanatory but knowing which driver to turn off is complicated. Fortunately, there is a wonderful website that explains each driver: http://www.blackviper.com/. Click on the operating system and service configurations for your setup. He will tell you what services are needed and which are not.

    Make sure you write down your original settings before changing them. Otherwise, when you break something, you know what to turn back on. He also recommends that you do not use msconfig.exe because it can turn off all sorts of things. Use services.msc instead. I use msconfig.exe to check the startup sequence and to find out who is loading what. Adobe will put a driver that runs so it can check for updates. I don’t care about their updates, so I turned it off using the Startup tab on msconfig. Want Java to run each time you power your computer even though it checks the website monthly? Kill it using msconfig. I only use msconfig to tweak the startup menu and not for services (another tab). I leave the other tabs alone, too. For services, I use services.msc. Before you turn off something, do an Internet search to find out what it is you’re turning off (if it is not adequately covered by black viper or the unfriendly help message that appears when using the program and clicking on the service). Turning off DHCP Client on my machine takes down the Internet, for example. You can spend a day playing with services.msc, as I did, but it allows you to tune your system for performance. If you suspect that a program is running that should not be (like a virus), then use msconfig and look at the programs that load at startup. And DO be careful about what you turn off because you can really hose your system, according to black viper.

  6. Build your own rescue toolkit
  7. There is a free Linux based operating system that runs from CDROM. It can read and write to the Windows operating system, do a virus check, and get to the Internet as well as other utilities. When my Windows machine would not boot, I used it to get to the internet and check email. I downloaded the latest version today (Tuesday) and tried it. It works.

    The program is called Insert and you can find it at http://www.inside-security.de/insert_en.html but you will have to poke around for it. If you use this link, select the English files and download them. Those are INSERT-1.3.9b_en.iso and INSERT-1.3.9b_en.iso.md5. The en stands for English, so make sure you grab the right files. The files are about 60 mb total, so it can take a few minutes to download. Once you have them downloaded, double click on the INSERT-1.3.9b_en.iso file. When I did that, it started my CDROM burner program and burned the boot image onto the CDROM. Make sure you have a blank in the burner, ready to go...

    After burning the CDROM, if you want to use it, you need to change the boot sequence of your computer. On my Dell computer, I press F12 when instructed to. Then I select the CDROM drive. After that, the program loads with a "boot:" prompt. I just press enter and it starts configuring itself for your hardware. A page of instructions displays, giving you a brief overview.

    When you’re done playing, you can right click on the background and you should be able to locate a stop/exit thingy somewhere (I am not sure about the sequence but you should be able to locate it easily enough. I found it in about 30 seconds). Select that and the system will unload, ask you to remove the CDROM and it will then turn the computer off. Be sure to change the boot sequence back to Normal or hard drive instead of the CDROM if you want to run Windows.

    I strongly recommend that you have this CDROM available. It allows you to access the Internet where maybe you can find answers to your boot problems. Since it allows you to burn CDROMS, you can save your data without loading Windows, too. How do you do that? I have no idea, so you will have to search for it.

  8. Keep your CDs in a fire safe.

    You can buy a fire safe at Wal-Mart for about $50 or so. Make sure it is rated to protect CDROMs. It probably will NOT protect your floppies, so consider burning any important floppy information onto a CD. Then put your safe in a safe place, away from your computers.

After the Crash

When my computer crashed on Sunday, I felt as if I was stranded alone on some road somewhere without a cell phone. I felt not panic, but helplessness. You have to push past the feeling and try to rescue your machine. Here are some things to try.

  • Turn the power off to the computer.
  • Let the machine sit for 30 seconds before you power it up again. Sometimes just cycling power in this manner will fix the problem.

  • Check the cables
  • My dog likes to park her fanny at my feet. Once she jostled the internet line so I lost the connection. Unplugging and reinserting the phone cord into the house outlet fixed the problem. Thus, check to be sure that all cables fit snuggly in their sockets. That includes the power cord. You may want to unplug and plug them in again because sometimes with age, the connection becomes intermittent.

  • Power strip
  • I had the switch to a power strip cause problems once. When you buy a power strip, be sure it has a surge protector built in. That won’t help if lightening hits your house (your house is going to burn down, anyway), but it will attenuate the smaller spikes and perhaps save your system from harm. They are not expensive, about $5, but get one with a switch and plug everything into it. After your computer turns itself off, you switch off the power, protecting your equipment by two switches.

  • Check the lights.
  • On my Dell machine are four lights on the back of the computer. If any of them are red, you probably have a hardware problem. Green is good. Check your manual for a discussion of what the lights mean. Dell also has a toll-free number to help you fix software problems. Mine computer with lifetime software (not hardware) support. Hardware support is extra. If they ask you to pay for support, say no. They tried to do that last time when it was a software/firmware problem. I said no to paying and they fixed the problem anyway at no charge.

  • Run a full virus scan
  • My anti-virus and anti-spyware software has stopped viruses from entering my machine several times, but not all of them. This latest crash is the second example. With the first one, my anti-spyware software kept complaining that some program was trying to contact various websites. I could not find the source of the problem and my trying to fix it took me offline for a week. I had to format the drive and reload the software. I discovered that the less web surfing I did, the less my system got infected. Go figure.

    The second crash happened this Sunday after I spent a week working on the RSS feed and then searching for aggregators to host my RSS feed. My computer kept rebooting, but system/restore fixed that problem.

  • Read the manual
  • I know. This is a fate worse than death, but read the manual. If the manual is in electronic form and your computer won’t boot, then you are out of luck.

  • Use system/restore.
  • That is what I used Sunday to fix my problem. I rolled the machine back to June and it booted fine. The prior two times I used system/restore, it complained that there was nothing to restore! And I thought the program was useless...until Sunday.

  • Factory Image

    If you own a Dell machine and are at the point of having to reload your software from scratch to get it going, they have a second partition on the hard drive that contains an image of the system as shipped from the factory. Consult your manual to figure out how to access it. When I looked on my drive for it, it wasn’t there. Sigh. If it was, it would have taken just minutes to reload the image instead of spending 4 hours inserting CDs.

  • Swap drives
  • If you have another windows machine, preferably the same model, you can use the drive from the second machine in the first one. If it boots, then you know it is a software problem and not a hardware one. Be sure to write down which is pin 1 on those cables (there should be 2, one for data and one for power). Mark pin 1 right on the drive so you don’t put the cable on backwards or upside down. And be sure to connect the power cable! Remember two cables per drive.

    If you have two drives in the broken machine, perhaps you can boot from the second drive. Consult your manual and the startup sequence when you boot. You may need to swap cables and change jumpers on the drives. If so, then write down the jumper settings before changing them.

    If you recently played with services.msc or msconfig.exe, then maybe you broke something there. Did you turn off the driver that controls access to the Internet? Maybe you turned off the video driver? If you can run Windows but a part of it is not acting normally (like no internet access or your electronic camera no longer can download images into the machine) then run services.msc and turn on the service you disabled. Remember, just because you change the setting from automatic to manual does not mean that programs will turn it on when needed. Many do not. And if you disable them, then they will not run those services. If you play with the two programs, or read the black viper information, you will know what I am talking about.

  • Event Viewer
  • In the control panel, under administrative tools, I have an event viewer. This tells me what is right and wrong with the operating system. It is handy when you are tweaking your system using msconfig or services.msc. When you break something, it will show up in the event viewer as an error. On Sunday when I checked it, the program said it was having difficulty loading some software. That did not help but it gave me a clue that it was a software problem.

  • Run in Safe Mode
  • If the operating system discovers a problem during booting, it should give you the option of running in safe mode. Try that. Safe mode strips the system down to the bare minimum. You will likely not have antivirus software running or much of anything else. Video will be 640 x 480, so your icons will look HUGE! You should be able to access services.msc to undo any damage you caused. Maybe you can use msconfig.exe to turn off any virus program running during start-up. You should be able to copy files to a floppy or maybe burn a CD of data, so you have options.

  • Run the Insert CD to see if your machine runs.

    If the CD will not boot either, then it is likely a hardware problem. That is when you should start sweating and holding onto your wallet or purse a bit tighter. Maybe you have a friend that knows more about computers that you do? Call them.

  • Use the backup drive
  • You might be able to boot from the external hard drive, so try that. Mine will not do that. But you might be able to use the Insert CD to copy files from one drive to the other. That way, you can restore the c:/Windows folder and try to boot again or perhaps other files as well. I do not know how successful that will be. Windows becomes protective when you try to overwrite a file in use or even copy an open file, but if Windows is not running, then this should not be a problem (meaning you are using the Insert CD to do the copying).

  • Reformat
  • As a last resort, you may have to reformat the hard drive. Even this is not easy. When my system crashed a year ago, I had to call Dell for help when it asked about partitions. I had two partitions but Dell told me to build 1 big partition. It worked. Before you reformat your drive, you will want to save as much data as you can, if you can. The Insert CD should help with that. If you cannot mount the drives, then you may be out of luck, but try. And if you have a backup drive, remember that it could be infected with a virus, too. Sometimes you have to run multiple virus programs to detect problems. And that may not help either.

-- Thomas Bulkowski

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Tuesday, 7/8/2008. How to Profit from Real Estate

A chart of UltraShort real estate ProShares (SRS) on the weekly scale.

The chart shows the ultraShort real estate ProShares (SRS) exchange traded fund on the weekly scale. According to yahoo!finance, it "seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the Dow Jones U.S. Real Estate index." You buy the fund if you expect real estate to drop in value.

When I looked at the chart, I saw the right shoulder (RS) mirrored on the left (LS). Then I discovered the complex head-and-shoulders top chart pattern. This one sports two left shoulders (LS and LS1) and two right (RS and RS1) ones.

Notice that RS1 towers above LS1. This suggests that the current price will climb above the peak of the far left shoulder, LS. Whether that will occur or not I can only speculate.

Even though this looks like a perfect head-and-shoulders top, and that the uptrend should now reverse, I think that is premature. I DO expect the ETF to drop tomorrow (Tuesday), because the homebuilding stocks tumbled an amazing 4.6% today (and this fund climbed the same amount), so they should snap back over the next few days. After that, though, the downtrend should continue for another week or two, following the path highlighted in green. I see the ETF continuing the move up, but overhead resistance should eventually stop it, probably at 130 -- a round number (from Monday’s close of 115.20). The climb could be as short as 120, which would equal the height of the two peaks on the left of the head.

Volatility is high, at 10.44 per share, meaning do not place a stop closer than 97.06 or you risk being stopped out. That is a massive 15.7% away from the close, too far away in my opinion and it warns that this security might not be worth trading (high volatility and a stop too far away, especially when the current price is near overhead resistance). I would probably wait until price drops and retraces some of the 4.6% gain. After that, it might be worth buying for a short term trade back up to 120 or maybe 130. If I am wrong, then we are seeing the left shoulder peaking today (Monday) and price will move down, confirming the complex head-and-shoulders top as a valid pattern when it closes below the neckline, drawn here in red. With the homebuilding industry facing so many troubles, I do not see that as likely.

Homebuilding stocks rank 28 out of 49, where 1 is best, for performance over the prior 6 months, so they are not the weakest of the industries that I look at, nor the strongest. An examination of the individual housing issues reveals that 7 out of 15 (47%) are trading at their lowest prices in a year. But many of the others are close, too. That suggests continued weakness.

-- Thomas Bulkowski

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Monday, 7/7/2008. Stocks: How Low Will They Go?

A monthly chart of the S and P 500 index.

Just a quick note for Monday. I released the RSS feed on Thursday. You can subscribe to it by clicking on the RSS feed symbol just above my books on the left of this page or this one... Bulkowski Blog via RSS

I show a monthly chart of the S&P 500 index. It looks complicated, so let’s take it one step at a time. The first thing I noticed was the forming Eve & Eve double top shown here as peaks A and B. The pattern becomes valid once the index closes below valley C.

I highlight the crash of 1987. Can you guess when that occurred? It sounds like a trick question, but he answer is, of course, 1987.

Along the way up the index are support regions circled in green at H, G, and F, where the index may reverse. Notice that congestion region F forms near bottoms D and E.

I extended the current price bottom using a magenta line and that is the horizontal line. Immediately below that is the first support region, line I, colored in dark green. This corresponds to a 38% retrace of the move up from C to B. Below that is support line J which bottoms a congestion region, circled and a valley to the left of E where the line starts. Another support line formed by the triple bottom at C, when the last bear market ended, appears as link K.

I show a thin red trendline beginning at H, touching the bottoms at C and continuing upward. This could act as support. However, if you draw a trendline from the low in 1987 (shown in yellow, so it does not clutter the screen but it IS hard to see), it will trend up, cutting valleys E and C midway and touching peak B. In other words, the average has been following it for quite some time, dropping below it at C and after B (currently).

What does all of this mean? The first potential turning point is line I. That may happen when the average touches the red trendline, probably quite soon. That would be a 38% retrace and a decline to 1200. We closed Friday at 1,262. Below that, line J is at 1,050 with a 50% retrace being at 1,100. A 62% retrace would be at 1,000, a nice round number. I do not show that on the chart but it is a possibility. The low at line K is 770.

If the double top confirms, then the measure rule for double tops in stocks says that the average will decline to...are you ready for this? The height of the double top is: 1,576 - 768 or 808. Subtracting that from the confirmation low of 768 gives a target of minus 40. Unlike some political campaigns, the average will not go negative. By the way, the chart uses a log scale, so vertical distances are distorted, for lack of a better word.

What is my guess? I vote for line I, but that may be wishful thinking. Both C and the current drop have moved below the 1987 trendline by similar amounts, so maybe the drop is over?

-- Thomas Bulkowski

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Wednesday, 7/2/2008. Industry relative strength pick.

A chart of Southwestern Energy on the daily scale.

Tom Brayman noticed that the RSI model portfolio had trailing stops turned on. This probably occurred when I was experimenting with the industry relative strength portfolio. Anyway, the corrected portfolio now appears in the associated model portfolio page. Thanks Tom...

I walked down to the grocery store for some celery and onions and on the way, passed two 18 wheel delivery trucks at Lowes with drivers inside, engines idling. I guess the price of diesel fuel has not changed their habits. If they don’t learn to turn off the engines and open the windows instead of sitting there in the comfort of air conditioning, they won’t have jobs. What company can afford to pay high prices for fuel when drivers are not driving? Maybe they will get the message when the pink slips come. Contrast that with UPS drivers. When they bound out of their trucks, the engines are off. That outfit has my admiration, especially when they clued me in to right turns. If you have two routes to your destination, with one having more right turns than left, take the route with the rights turns. Why? Because you will not be stuck waiting to make a left turn while traffic clears. You’ll save time and time means gas. Of course if you eat beans, you’ll have all the gas you need. I tested this...

I show Southwest Energy on the daily scale not as a buy pick but with additional research, you can consider it one. It shows a symmetrical triangle with an upward breakout in an industry ranked 2 out of 49 for performance, where 1 is best. The stock ranks 9 out of 561 for price performance over the last 6 months. Both are excellent numbers. The stock is not cheap, but it is not google expensive either.

According to my scoring system for symmetrical triangles, it ranks 0. That means it is not a screaming buy nor a sell: neutral, in other words. The pattern height is short, and that is usually not good for performance but since it is near the yearly high, overhead resistance is absent. Breakout volume is also below average, so that is bad, too. Be careful with this one. A median rise would place the target at 62.35.

If you want to go trolling for other stocks in the diversified natural gas industry, I list them below.

-- Thomas Bulkowski

Symbol Chart Pattern Start End
ATGTriangle, ascending08/28/200710/03/2007
ATOPipe top01/28/200802/04/2008
COGPipe bottom04/21/200804/28/2008
DVNRising wedge11/14/200712/31/2007
EGNTriangle, symmetrical01/28/200802/20/2008
EQTHead-and-shoulders bottom05/29/200707/25/2007
NFGPipe top10/29/200711/05/2007
NFXTriangle, symmetrical05/15/200806/26/2008
OKETriangle, descending05/20/200806/12/2008
STRDouble Top, Eve and Adam11/01/200701/14/2008
SUGHead-and-shoulders bottom03/06/200804/14/2008
SWNTriangle, symmetrical05/21/200806/26/2008

 

Definitions
RS is relative strength (where 1 is best). For others, see the glossary.
’Breakout is upward/downward 100% of the time’ means price breaks out up/down by definition, not by statistically measuring the rate.
All numbers assume a bull market and are based on the breakout direction that occurs most often.
For more information, consult my book, Encyclopedia of Chart Patterns, Second Edition.
 
AGL Resources Inc (ATG)
Industry: Natural Gas (Diversified)
Industry RS rank: 2 out of 46
Stock RS rank: 271 out of 561
Latest close as of 07/01/2008: $34.22
1 Month average volatility: $0.58. Volatility based stop (assuming an upward breakout): $33.01 or 3.5% below the close.
Change year to date: -9.09%
Volume: 879,700 shares
3 month average volume: 663,034 shares
 
Chart pattern: Triangle, ascending reversal pattern from 08/28/2007 to 10/03/2007
Performance rank: 17 out of 23.
Breakout is upward 70% of the time.
Average rise: 35%.
Break-even failure rate: 13%.
Throwbacks occur 57% of the time.
Price meets the measure rule target 75% of the time.
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Atmos Energy Corp (ATO)
Industry: Natural Gas (Diversified)
Industry RS rank: 2 out of 46
Stock RS rank: 209 out of 561
Latest close as of 07/01/2008: $27.75
1 Month average volatility: $0.46. Volatility based stop (assuming a downward breakout): $28.72 or 3.5% above the close.
Change year to date: -1.03%
Volume: 682,400 shares
3 month average volume: 515,266 shares
 
Chart pattern: Pipe top reversal pattern from 01/28/2008 to 02/04/2008
Performance rank: 4 out of 21.
Breakout is downward 100% of the time.
Average decline: 20%.
Break-even failure rate: 11%.
Pullbacks occur 41% of the time.
Price meets the measure rule target 70% of the time.
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Cabot Oil and Gas A (COG)
Industry: Natural Gas (Diversified)
Industry RS rank: 2 out of 46
Stock RS rank: 10 out of 561
Latest close as of 07/01/2008: $68.58
1 Month average volatility: $3.20. Volatility based stop (assuming an upward breakout): $59.67 or 13.0% below the close.
Change year to date: 69.88%
Volume: 1,803,500 shares
3 month average volume: 916,454 shares
 
Chart pattern: Pipe bottom reversal pattern from 04/21/2008 to 04/28/2008
Performance rank: 2 out of 23.
Breakout is upward 100% of the time.
Average rise: 45%.
Break-even failure rate: 5%.
Throwbacks occur 44% of the time.
Price meets the measure rule target 83% of the time.
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Devon Energy Corp. (DVN)
Industry: Natural Gas (Diversified)
Industry RS rank: 2 out of 46
Stock RS rank: 39 out of 561
Latest close as of 07/01/2008: $123.00
1 Month average volatility: $4.06. Volatility based stop (assuming a downward breakout): $131.35 or 6.8% above the close.
Change year to date: 38.34%
Volume: 6,189,000 shares
3 month average volume: 3,686,202 shares
 
Chart pattern: Rising wedge reversal pattern from 11/14/2007 to 12/31/2007
Performance rank: 20 out of 21.
Breakout is downward 69% of the time.
Average decline: 14%.
Break-even failure rate: 24%.
Pullbacks occur 63% of the time.
Price meets the measure rule target 46% of the time.
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Energen Corp (EGN)
Industry: Natural Gas (Diversified)
Industry RS rank: 2 out of 46
Stock RS rank: 70 out of 561
Latest close as of 07/01/2008: $78.06
1 Month average volatility: $1.95. Volatility based stop (assuming an upward breakout): $73.27 or 6.1% below the close.
Change year to date: 21.53%
Volume: 666,900 shares
3 month average volume: 720,922 shares
 
Chart pattern: Triangle, symmetrical continuation pattern from 01/28/2008 to 02/20/2008
Performance rank: 16 out of 23.
Breakout is upward 54% of the time.
Average rise: 31%.
Break-even failure rate: 9%.
Throwbacks occur 37% of the time.
Price meets the measure rule target 66% of the time.
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Equitable Resources, Inc (EQT)
Industry: Natural Gas (Diversified)
Industry RS rank: 2 out of 46
Stock RS rank: 49 out of 561
Latest close as of 07/01/2008: $69.45
1 Month average volatility: $2.02. Volatility based stop (assuming an upward breakout): $63.15 or 9.1% below the close.
Change year to date: 30.35%
Volume: 1,211,800 shares
This security may be thinly traded (less than 100,000 shares)!
 
Chart pattern: Head-and-shoulders bottom reversal pattern from 05/29/2007 to 07/25/2007
Performance rank: 7 out of 23.
Breakout is upward 100% of the time.
Average rise: 38%.
Break-even failure rate: 3%.
Throwbacks occur 45% of the time.
Price meets the measure rule target 74% of the time.
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National Fuel Gas (NFG)
Industry: Natural Gas (Diversified)
Industry RS rank: 2 out of 46
Stock RS rank: 54 out of 561
Latest close as of 07/01/2008: $59.63
1 Month average volatility: $1.16. Volatility based stop (assuming a downward breakout): $62.21 or 4.3% above the close.
Change year to date: 27.74%
Volume: 586,500 shares
3 month average volume: 599,800 shares
 
Chart pattern: Pipe top reversal pattern from 10/29/2007 to 11/05/2007
Performance rank: 4 out of 21.
Breakout is downward 100% of the time.
Average decline: 20%.
Break-even failure rate: 11%.
Pullbacks occur 41% of the time.
Price meets the measure rule target 70% of the time.
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Newfield Exploration Company (NFX)
Industry: Natural Gas (Diversified)
Industry RS rank: 2 out of 46
Stock RS rank: 65 out of 561
Latest close as of 07/01/2008: $66.70
1 Month average volatility: $2.81. Volatility based stop (assuming an upward breakout): $58.61 or 12.1% below the close.
Change year to date: 26.57%
Volume: 1,802,100 shares
This security may be thinly traded (less than 100,000 shares)!
 
Chart pattern: Triangle, symmetrical continuation pattern from 05/15/2008 to 06/26/2008
Performance rank: 16 out of 23.
Breakout is upward 54% of the time.
Average rise: 31%.
Break-even failure rate: 9%.
Throwbacks occur 37% of the time.
Price meets the measure rule target 66% of the time.
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Oneok Inc (OKE)
Industry: Natural Gas (Diversified)
Industry RS rank: 2 out of 46
Stock RS rank: 120 out of 561
Latest close as of 07/01/2008: $49.29
1 Month average volatility: $0.93. Volatility based stop (assuming a downward breakout): $51.28 or 4.0% above the close.
Change year to date: 10.10%
Volume: 717,200 shares
3 month average volume: 717,494 shares
 
Chart pattern: Triangle, descending reversal pattern from 05/20/2008 to 06/12/2008
Performance rank: 10 out of 21.
Breakout is downward 64% of the time.
Average decline: 16%.
Break-even failure rate: 16%.
Pullbacks occur 54% of the time.
Price meets the measure rule target 54% of the time.
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Questar Corp. (STR)
Industry: Natural Gas (Diversified)
Industry RS rank: 2 out of 46
Stock RS rank: 46 out of 561
Latest close as of 07/01/2008: $73.38
1 Month average volatility: $1.95. Volatility based stop (assuming a downward breakout): $77.66 or 5.8% above the close.
Change year to date: 35.64%
Volume: 2,845,700 shares
3 month average volume: 1,006,126 shares
 
Chart pattern: Double Top, Eve and Adam reversal pattern from 11/01/2007 to 01/14/2008
Performance rank: 13 out of 21.
Breakout is downward 100% of the time.
Average decline: 15%.
Break-even failure rate: 13%.
Pullbacks occur 64% of the time.
Price meets the measure rule target 72% of the time.
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Southern Union Co (SUG)
Industry: Natural Gas (Diversified)
Industry RS rank: 2 out of 46
Stock RS rank: 269 out of 561
Latest close as of 07/01/2008: $27.01
1 Month average volatility: $0.56. Volatility based stop (assuming an upward breakout): $25.53 or 5.5% below the close.
Change year to date: -8.00%
Volume: 747,800 shares
3 month average volume: 624,069 shares
 
Chart pattern: Head-and-shoulders bottom reversal pattern from 03/06/2008 to 04/14/2008
Performance rank: 7 out of 23.
Breakout is upward 100% of the time.
Average rise: 38%.
Break-even failure rate: 3%.
Throwbacks occur 45% of the time.
Price meets the measure rule target 74% of the time.
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Southwestern Energy Company (SWN)
Industry: Natural Gas (Diversified)
Industry RS rank: 2 out of 46
Stock RS rank: 9 out of 561
Latest close as of 07/01/2008: $48.53
1 Month average volatility: $1.99. Volatility based stop (assuming an upward breakout): $43.20 or 11.0% below the close.
Change year to date: 74.19%
Volume: 5,992,600 shares
3 month average volume: 2,327,195 shares
 
Chart pattern: Triangle, symmetrical continuation pattern from 05/21/2008 to 06/26/2008
Performance rank: 16 out of 23.
Breakout is upward 54% of the time.
Average rise: 31%.
Break-even failure rate: 9%.
Throwbacks occur 37% of the time.
Price meets the measure rule target 66% of the time.
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Tuesday, 7/1/2008. A new month and another missed trade.

A picture of my dog.

Each new month brings opportunity, but some things never change. I vacuum the house, whether it needs it or not (it always does), do my wash, and that includes washing the dog. If I say "bath" to her and then reach down to pick her up, she will bite me. Instead, I entice her into the bath with a dog treat and give her another when we’re done splashing and covering everything in sight with wet dog hair. And yes, that is a picture of her when we were fooling around outside.

A new month is also an opportunity for reminders. If you see an ad that looks interesting, then click on it. But before you sign up for any service, be sure to check the disclaimers and privacy notices. Some websites are paid to tout stocks and you will want to avoid those sites/stocks. For the record, I do not discuss securities recommended/touted by others nor accept any type of compensation to discuss, highlight, or mention a security. If I own a security that I discuss, I will tell you.

If you buy anything (clothing, books, whatever) from Amazon.com then please do so through this site. To do that, just click (or maybe 2 clicks) on any book picture and it will take you there. After a purchase, I receive a small referral fee and that helps support this site. Using this site as a feeder to Amazon does not increase your fee in any way.

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The chart of the Atwood Oceanics (ATW) on the daily scale.

I was wondering how to make money in this market and decided on buying an oil stock. On June 23, I added it to my watch list, which you can find either from the home page or by clicking on the Model Portfolios button at the top of this page. You will find it listed in both places as Bulkowski’s Watch List.

Anyway, after the market closed, I placed a buy stop on ATW at 109.31, a penny above the day’s high. I fully expected the order to be hit and I wanted it to be. Before I go further, let’s look at my notebook entry for the trade.

Today's date: 06/23/2008
Order details: Buy stop @ 109.31. A penny above today's high.
Date bought:
Stop: 97.45 -10.5%. Stop used: 99.21
Upside target: Score: 3. Target: 140.43.
SAR: None. It's at yearly high, once it clears the triangle top
Weinstein stage: 2
Next earnings: August 8
Weekly scale (industry, too): Industry is ranked 1. This stock is ranked 116/550.
Indicators: CCI: buy today. BB: narrowing.
Buy reason: breakout from symmetrical triangle in a top ranked industry. This has lots of insider selling since February 08, buying in Dec 07. Ford expects above avg performance in next 3 months. P/E is near the 5 year low (17.7 is the low. It's at 20.3 and high end is at 72.8).

I entered the order after I posted it to the blog and the order was for the next day, not as a market order but as a buy stop. That is a buy order that executes as a market order once price rises to the stop price. A volatility stop was set for 97.45 or 10.5% below the current close but I used a closer one, at 99.21. That would put it below a support zone, as I recall. I show the stop loss price as the green line.

I used the scoring system discussed in my Trading Classic Chart Patterns book. I won’t go through how I score it, but you can do the same here (or click the "Scoring Patterns" button at the top of this page and then symmetrical triangles. The score was +3, meaning the probabilities were on my side for a winning trade. Based on the median rise of similar triangles, it said the target was 140.43.

The Weinstein stage is 2, meaning price is taking off and it is based on the book, Stan Weinstein's Secrets For Profiting in Bull and Bear Markets.

The earnings announcement is more than 3 weeks away, so I don’t have to worry about the announcement dropping the stock in half, or worse. I chose this stock because of the high (1) industry rank (out of 48 at the time, where 1 is best), but the stock performance over the last 6 months ranked 116 out of 550 for performance, where 1 is best. Thus, the stock was an ok choice but not a barn burner. Perhaps that was to be expected since the stock was forming a symmetrical triangle. Anyway, the commodity channel index (CCI) said buy and Bollinger bands were narrowing, suggesting a large price move was coming (but no guarantee).

I looked at broker reports for the stock and was pleased to find that the P/E (price to earnings) ratio was near the bottom of its 5 year range. From a fundamental perspective, that meant it was a screaming buy. Ford Equity Research also said that prior price trends indicated above average price performing in the coming 3 months. I believe their performance rankings are useful and accurate but I have not tested them yet.

So what happened? The next day, June 24, the market opened lower and proceeded to drop. When I checked on it, I was surprised to find that the high for the stock was posted as 110.51 but the stock chart did not reflect that. In fact, the stock never climbed to the buy stop and my order never executed, despite showing a high that day above the buy stop of 109.31. Since the stock was dropping, I did not call my broker and complain. I’m not that dumb. Instead, I canceled the buy order and felt good that I missed another loser. (I have seen this in the past in other stocks. When I asked my broker about such occurrences, he said that the trade is like a market marker correcting a mistake but they are required to post the trade by the exchanges. Thus, even though it set a new high for the day, the trade did not actually take place during market hours and the buy stop was not triggered. That is the best explanation I can give. It certainly is weird).

As the chart shows, the stock took off in the coming days, climbing something like 5% the next day and continuing at a similar high rate. The high today was 125.89, or 15% above my buy stop. The stocks I own are going down and the ones I don’t buy take off. Sigh.

-- Thomas Bulkowski

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