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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 07/26/2017
21,711 97.58 0.5%
9,484 -5.36 -0.1%
723 6.73 0.9%
6,423 10.58 0.2%
2,478 0.70 0.0%
YTD
9.9%
4.9%
9.5%
19.3%
10.7%
Tom's Targets    Overview: 07/14/2017
21,850 or 21,000 by 08/01/2017
9,950 or 9,400 by 08/01/2017
740 or 685 by 08/01/2017
6,450 or 6,175 by 08/01/2017
2,525 or 2,400 by 08/01/2017

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.

July 2010 Headlines


Archives


Thursday 7/29/10. Bear Market Recovery

How many times have you heard someone say that the strongest stocks are the first ones to recover, that they bounce back further than weaker stocks? I heard that about two weeks ago from a financial consultant.

This is an example of a market truism that's false. Stocks that are weakest bounce back further than the strongest ones. I conducted research to prove it. Here's a brief review.

I used 472 stocks that contained data from March 24, 2000 (the start of the bear market in the S&P 500 index) to March 8, 2010, one year after the 2007-2009 bear market ended.

Stocks during the 2000 to 2002 bear market lost a median of 49% of their value and gained a median of 54% a year after the bear market ended. In the 2007 to 2009 bear market, the test stocks dropped a median 57% and then recovered a median of 89% the next year. Using those median values as the separation between large and small declines, I found the following, shown in the table.

BenchmarkMedian Gain
1 Year Later
Average Gain
1 Year Later
2000-2002 Bear Market
Drops more than 49%107%158%
Drops less than 49%29%45%
2007-2009 Bear Market
Drops more than 57%145%223%
Drops less than 57%61%69%

For example, those stocks with drops more than the median 49% in the 2000 to 2002 bear market gained a median 107% a year after the bear market ended. This compares to a median rise of just 29% for those stocks making a more shallow bear market drop (that is, they dropped less than 49%).

In the 2007-2009 bear market, stocks followed the same trend. For those stocks that declined more than the median 57%, they saw a recovery that averaged 223% a year after the bear market ended. This compares to an average rise of just 69% for those stocks that declined less than the median 57% in a bear market.

In both bear markets, the numbers show that after a bear market ends, stocks that dropped most make the largest gains a year later. Stocks that dropped least (retained more of their value) rose less.

-- Thomas Bulkowski

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Picture of a flower from my garden.

Tuesday 7/27/10. Tuesday: What Would Turn Me Bullish?

I have been struggling all summer to beat my personal best speed record of 17.5 mph over a ~15 mile course. On Saturday, I slightly exceeded it for the first time ever. However, today (Monday), I averaged 18.5 mph over a 14.68 mile course. That 1 mph difference might now sound like much, but it represents a time savings of nearly 2.5 minutes! Why the difference? No wind.

# # #

I received an email which asked a question I've never been asked before. What would turn me bullish? First, the backstory.

Near the start of this month, the long term 12 month simple moving average climbed above the indexes, as I reported in my blog. I decided to play it safe and in the days that followed, I sold off just over half of my portfolio, mostly taking gains on my winners before they dropped, but also taking a few minor losses. I didn't like doing any of that because they were only about half-way to their targets (or less) and certainly some had declined too far from their recent highs. But, you never go broke taking a profit.

I have not done preemptive selling on such a large scale. Some will say that the real fireworks begin not on July 4, but sometime in August and there's always the worst performing month to contend with: September.

So what would turn me bullish? I would be bullish if it wasn't for that study on moving averages. Most of the indexes you see in Tom's Targets, above, are showing green, meaning I expect them to rise in the short term. If good news lifts the market higher than normal and bad news is dismissed without sinking the markets unduly, then that would be a very good sign. In fact, we're seeing some of that now.

The economy seems to be holding its own. It's not as dire as I felt it was 2 weeks ago, but it's not exactly humming, either. I am concerned about the indexes bumping up against overhead resistance. If they can push through that, then I'll consider moving my IRA money back into the market. I don't see much worth buying now, but time can change that. I just might wait until September because that's almost always a good time to buy.

-- Thomas Bulkowski

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Monday 7/26/10. Market Monday: The Week Ahead

I found out late last week that the British are working on a two-engine car (rocket and jet, called the Bloodhound Supersonic Car) that's designed to travel 1,000 miles per hour in hopes of setting a new land speed record in South Africa in 2012. First, though, they have to beat my record.

I just made their job harder by raising the bar. I broke my record this past Saturday when I powered my bicycle to an average speed of 17.53 mph over a 14.66 mile course. That includes 3 stop lights, numerous stop signs, and climbing six of the largest mountains you've ever seen (each at least 30 feet high. To put that into perspective, both Everest and K2 are also at least 30 feet high). I did it all without duct-taping a gas powered weed-eater engine to the frame like my brother has tried. Plus, the wind was a steady 12 mph out of the Southwest, which never helps.

My Prediction

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

This past weekend, I received three emails (well, more than three, but these stand out). One said that the market was going higher. The second said it was going lower. The third said it was going higher but only for a short time before it moved sideways. Such divergence of opinion in one day hasn't happened before. It suggests that no one really knows where the market is headed. Here's what I think.

Pictured in the chart is the S&P 500 index on the daily scale. The horizontal blue lines mark underlying support (bottom) and overhead resistance. Points ABCD are the start of a measured move up chart pattern.

It begins with A as the start of the first up leg. BC is the corrective phase, and C begins the second leg up which should end toward D. Do not expect the index to actually hit D. I just penciled that in to show the direction, not the extent.

If you consider the blue lines as showing the outline of a rectangle bottom, then C is a partial decline and that often means an upward breakout. That's not always true, of course, as last week's chart of the Dow transports shows (at least so far).

What this chart tells me is that the index is going higher in the near term. However, it has to push through the horizontal blue line of overhead resistance. Then I would expect it to stall near the high of the June peak. In other words, I expect the index to turn down soon.

Will it actually happen as I expect? I'm like the rest of you: I have no idea.

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A Brief Look Back

Picture of a flower from my garden.

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

Monday: Up 56.53 points.
Tuesday: Up 75.53 points. Building permits inched higher, above expectations, but housing starts dropped.
Wednesday: Down 109.43 points.
Thursday: Up 201.77 points. Initial jobless claims rose much more than expected, existing home sales climbed, but leading indicators dropped.
Friday: Up 102.32 points.

For the Week...

The Dow industrials were up 326.72 points or 3.2%.
The Nasdaq composite was up 90.42 points or 4.1%.
The S&P 500 index was up 37.78 points or 3.5%.

Year to Date...

Dow Industrials
     7.4% down from the high of 11,258.01 on 04/26/2010.
     8.4% up from the low of 9,614.32 on 07/02/2010.
Nasdaq
     10.5% down from the high of 2,535.28 on 04/26/2010.
     10.1% up from the low of 2,061.14 on 07/01/2010.
S&P 500
     9.6% down from the high of 1,219.80 on 04/26/2010.
     9.1% up from the low of 1,010.91 on 07/01/2010.

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Economic Reports

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

ReportTimeA-F
Rating
Description
New home sales10:00 MC+Shows sales of single-family homes.
Consumer confidence10:00 TB-Surveys 5,000 households for trends.
Durable goods orders8:30 WBMeasures orders, shipments of goods with lifespans >3 years.
FEDs Beige book2:00 W?Reports on economic conditions.
Initial jobless claims8:30 ThC+Counts people filing for state unemployment benefits.
Gross domestic product8:30 FBMeasures economic activity; GDP deflator measures inflation.
Chicago purchasing managers index9:45 FBMonitors regional manufacturing activity.

Options Expiration

No options expire this week.

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Swing and Position Traders: Chart Pattern Indicator

As of 07/23/2010, the CPI had:

2 bearish patterns,
47 bullish patterns,
169 patterns waiting for breakout.
The CPI signal is 95.9%, which is bullish (>= 65%).

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

Buy-and-Hold: 12-Month SMA

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

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Earnings, Chart Patterns & Industries

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

Large numbers of bullish or bearish patterns can signal short to intermediate term market trends. The most frequently appearing chart patterns in the stocks, indexes, and long-only ETFs I follow during the last month were:

FoundPattern Name
133Pipe bottom
42Head-and-shoulders bottom
26Triangle, symmetrical
17Broadening bottom
16Triple bottom
14Double Bottom, Adam and Adam
14Big W
12Double Bottom, Adam and Eve
10Double Bottom, Eve and Eve
9Triangle, ascending

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

This WeekLast Week
1. Shoe1. Shoe
2. Computers and Peripherals2. Computers and Peripherals
3. Metal Fabricating3. Toiletries/Cosmetics
4. Trucking/Transp. Leasing4. Retail Building Supply
5. Packaging and Container5. Natural Gas (Distributor)
48. Homebuilding48. Building Materials
49. Short ETFs49. Petroleum (Producing)
50. Natural Gas (Diversified)50. Homebuilding
51. Coal51. Oilfield Svcs/Equipment
52. Oilfield Svcs/Equipment52. Coal

-- Thomas Bulkowski

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Thursday 7/22/10. A Stock Doubles or Halves. What's Next?

Today I was thinking about how I began selecting stocks when I first started plying the markets. One of the criteria was to use Value Line and select stocks that doubled at least twice out of five years. That lead me to question, what happens a year after price makes a large move?

To answer that, I used my database of 567 stocks from 1990 to 2008. Not all stocks covered the entire range. I computed the yearly low to yearly high price difference in each stock for each year and the close to close move a year later.

Picture of the Dow transports on the daily scale.

When price doubled, say, the yearly low was $5 and it then climbed to a yearly high of $10 or more, the next year's move was 53% more likely to beat the close-to-close gain of those stocks not doubling in price. The 53% value is a count of the number of years in which stocks that doubled beat those that did not (10 of 19 contests).

Over those 19 years, the cumulative (sum) "next year" median move was 385% for those stocks that doubled compared to a cumulative rise of just 165% for stocks not doubling in the prior year. Substituting averages for the median gives a cumulative gain of 916% for those stocks which doubled compared to gains of 273% for those not doubling.

I know that sounds confusing, but the bottom line is that stocks which more than doubled in one year also outperformed the next year, but that occurred just over half the time.

Cut in Half

What about stocks that drop by half or more? How does price behave the next year?

After a stock drops in half or more from the yearly high to the yearly low, the stock bounces back higher a year later than do those stocks not falling as far. In 19 contests, the large decliners win 68% of the time. The cumulative year ahead gain based on the median price changes for those 19 contests is 253% for stocks with drops over 50% compared to cumulative year-ahead gains of 152% for those not suffering a large drop. Substituting averages gives 588% for large decliners compared to cumulative gains of 293% for small decliners.

In other words, stocks that make large declines bounce back higher a year later than those that don't.

When selecting stocks, look at the yearly high-low price range. If the yearly high is at least twice the yearly low (regardless of which came first, the high or the low) the stock could outperform the following year. You are more likely to pick a winner if the stock made a large decline instead of a large rise.

The complete study is here.

-- Thomas Bulkowski

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Tuesday 7/20/10. Tutorial Tuesday: The Adam White Setup

I was watching the PBS show, "McLaughlin Group," and the host said that the US debt is now 14 trillion dollars. That's $47,000 for every resident in the U.S. Wow. That's more than I make in a week!

# # #

I released another trading setup that I call the Adam White setup, since that's the name of the guy who popularized it in a Technical Analysis of Stocks and Commodities magazine article in 1995. For details, click on the link.

Here's the summary along with a table of results:

Metric567 Stocks
In Sample
2000-2005
567 Stocks
Out of Sample
2005-2010
104 ETFs
Out of Sample
2005-2010
Average win: $940.89$897.00$800.45
Average loss: ($334.84)($321.73)($219.71)
Average profit per trade: $606.05$575.28$580.74
Dollars won/loss: 2.82.83.6
Win/loss ratio: 58%56%62%
Average drawdown: 12%12%10%
Average hold time loss: 6%6%5%
Average hold time: 96 days101 days113 days
Trades: 3,9825,681921

This trading setup is for the long term position trader. It's more suitable to exchange traded funds (ETFs) than it is for stocks, but it performs almost as well in stocks as in ETFs.

The setup relies on higher highs and higher lows for entry. Exit is a two part affair. The first half measures how far price has retraced from a peak. The second part acts as a switch to turn on and off the retracement exit. It uses what Adam White calls a trend analysis index or TAI for short. The trend analysis index calculates a high-low price range to determine whether price is trending or not. If price is trending, the TAI switches off the retracement exit.

For exchange traded funds, the system wins 62% of the time, making 3.6 times as much as when it loses. The average profit per trade is $581 on a $10,000 investment held for 113 days, on average.

-- Thomas Bulkowski

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Monday 7/19/10. Market Monday: The Week Ahead

My Prediction

Picture of the Dow transports on the daily scale.

The chart shows the Dow transports on the daily scale. It also shows a broadening bottom chart pattern that many of the other indexes show. I focus this week on the transports because of the partial rise.

A partial rise occurs in many types of broadening formations and in a few other types of chart patterns as well (triangles, for example). Price touches the bottom trendline then moves higher, trying to cross the pattern to touch the top trendline, but it doesn't make it. Price turns down and breaks out downward in a well-performing partial rise.

For a broadening bottom, that sequence happens 67% of the time, so it's a good bet. It's also not perfect. Visit the link above for details on how to spot a partial rise.

I expect the transports and the other market indexes to continue sliding, but it's also earnings season. That means the market could shoot up on a surprising good report from a bell-weather company or drop like a stone in water (except for pumice, of course, which floats). Tuesday is the day to watch as far as economic reports are concerned. That's when housing starts and building permits come in.

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A Brief Look Back

Picture of a flower from my garden.

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

Monday: Up 18.24 points.
Tuesday: Up 146.75 points. The trade balance (deficit) grew more than expected but the treasury budget narrowed.
Wednesday: Up 3.7 points. Retail sales slipped more than expected but narrowed from the prior period. Business inventories dropped.
Thursday: Down 7.41 points. Initial jobless claims dropped, the PPI sank, industrial production ticked higher but capacity utilization eased lower.
Friday: Down 261.41 points. The core CPI increased more than the market expected.

For the Week...

The Dow industrials were down 100.13 points or 1.0%.
The Nasdaq composite was down 17.4 points or 0.8%.
The S&P 500 index was down 13.08 points or 1.2%.

Year to Date...

Dow Industrials
     10.3% down from the high of 11,258.01 on 04/26/2010.
     5.0% up from the low of 9,614.32 on 07/02/2010.
Nasdaq
     14.1% down from the high of 2,535.28 on 04/26/2010.
     5.7% up from the low of 2,061.14 on 07/01/2010.
S&P 500
     12.7% down from the high of 1,219.80 on 04/26/2010.
     5.3% up from the low of 1,010.91 on 07/01/2010.

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Economic Reports

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

ReportTimeA-F
Rating
Description
Building permits8:30 TB-Measures building permits for new construction.
Housing starts8:30 TB-Number of homes beginning construction.
Crude inventories10:30 W?My guess: Measures oil inventory.
Initial jobless claims8:30 ThC+Counts people filing for state unemployment benefits.
Existing home sales10:00 ThCCounts sales of used homes.
Leading indicators10:00 ThD-Summary of already known reports.

Options Expiration

Vix and RVX expire on Wednesday.

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Swing and Position Traders: Chart Pattern Indicator

On 07/16/2010, the chart pattern indicator (CPI) had:

40 bearish patterns,
1 bullish patterns,
323 patterns waiting for breakout.
The CPI signal is 2.4%, which is bearish (<= 35%).

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

Buy-and-Hold: 12-Month SMA

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

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Earnings, Chart Patterns & Industries

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

I found 112 pipe bottoms last week, which is very bullish! Large numbers of pipe bottoms often signal the start of a short to intermediate-term move up before price drops back down, forming an unconfirmed double bottom. Oddly, I found a similar number of pipe tops.

Large numbers of bullish or bearish patterns can signal short to intermediate term market trends. The most frequently appearing chart patterns in the stocks, indexes, and long-only ETFs I follow during the last month were:

FoundPattern Name
115Pipe bottom
107Pipe top
22Triangle, symmetrical
16Broadening bottom
11Triple bottom
8Head-and-shoulders top
8Big W
8Head-and-shoulders bottom
7Double Bottom, Adam and Eve
7Triangle, descending

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

This WeekLast Week
1. Shoe1. Shoe
2. Computers and Peripherals2. Computers and Peripherals
3. Toiletries/Cosmetics3. Retail Building Supply
4. Retail Building Supply4. Toiletries/Cosmetics
5. Natural Gas (Distributor)5. Trucking/Transp. Leasing
48. Building Materials48. Homebuilding
49. Petroleum (Producing)49. Securities Brokerage
50. Homebuilding50. Oilfield Svcs/Equipment
51. Oilfield Svcs/Equipment51. Alternate Energy
52. Coal52. Coal

-- Thomas Bulkowski

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Thursday 7/15/10. Market Musings

Picture of a flower

The pictures on this website, such as the two on the right, were taken by me, often in my back yard. It's a small yard, but I've turned it into a nature preserve.

We all see the same things, but a camera lens seems to find new views. I'm happy to share those perspectives with you.

# # #

Today I was out again with my bicycle flying down one of the longer hills where I live, and beside me pulls a police car. I was doing 27 mph at the time in a 30 mph zone. He slowed down and we rode the hill together. Kinda cool. Now I'm wondering if he was just checking my speed.

That reminds me of the 1/4 mile stretch in front of the police station. Being a law-abiding citizen, I haven't been tempted to break the rules, but it's an interesting notion -- breaking the speed limit in front of the police station on a bicycle.

It would be easy enough to do on a good bike, but I'll need a decent tail wind on the thing I ride now (bought used for $50 from my neighbor who got it from a friend who could have stole it for all I know).

Actually, it's a good bike but metal construction means it weights a lot: 182 pounds fully loaded (that's 152 pounds of water, tools, 2 inner tubes, and 30 pounds for me, but my scale could be off). Pro bikes have higher gear ratios and weight less than 15 pounds.

# # #

Picture of a flower

Let's talk about the market. Dedicated readers of this blog will know that I started selling my holdings just as the market turned up. Oops. I continued to ease out of positions, using a tight trailing stop (meaning a few pennies below the current price bar). That works well in strongly trending markets like we've seen in the past week, but it also guarantees that you'll be stopped out eventually.

I'm 44% in cash now, not including the security I sold today. I'll hold off selling more because the upside potential of what remains is too great to just throw away and get back in later. They are all long term hold positions.

If you want performance numbers, then my win/loss ratio this year is 79% with average gains of 34.4% on my winners and 11.5% on my losers. For every dollar I've lost, I've made $10.94. Those, of course, are on completed trades, year-to-date.

If you look at the chart of your favorite index (S&P, Dow indices, Nasdaq), don't they look tired, as if price is going to topple over? I remarked in a recent post that the candle height was getting shorter. Today's Dow looks like a doji with the S&P and Nasdaq hovering around a 62% retrace of the recent downturn.

I've left my bullish targets at the top of this page alone until I get a clear sign of trouble. That hasn't happened with good news about CSX, Intel, and Alcoa, but the retailers will get whacked when they report weak sales. According to one news report, the FOMC downgraded their outlook on the economy, and the government said retail sales were weak. Investors and traders have pushed up the indexes fast on growing optimism, but Mr. Market will probably swat them down soon. When? I'd like to say starting Thursday (it's Wednesday as I write this) but my timing has been off in the last 2 weeks, so what do I know?

-- Thomas Bulkowski

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Tuesday 7/13/10. Tutorial Tuesday: A Look at Distribution Days

A SFO magazine article in the May 2007 issue by Kate Stalter titled, Stock picking: the formula for success, prompted research into distribution days. She wrote,

Look for a day when an index sells off in heavier volume than in the previous session. That's known as a distribution day...Investor's Business Daily's research into past corrections and downtrends shows that five or six distribution days over a period of about four weeks can be a signal that the market's uptrend is weakening.

Another source said that a distribution day means a major index closes lower more than 0.2% on higher volume 4 or 5 times within 2 or 3 weeks.

My Results

The following table shows the results for stocks in a series of competitions as explained in the study on distribution days.

VolumePrice Trend1 wk2 wks3 wks1 mo2 mos3 mos
HeavyUp0%0%0%0%0%0%
HeavyDown100%100%100%100%100%100%
LightUp0%0%0%0%0%0%
LightDown100%100%100%100%100%100%

A cluster of distribution days within 21 calendar days during a rising price trend is supposed to predict a price drop. It doesn't. Clusters of distribution days only work in a falling price trend, regardless of whether volume is heavy or light. This finding applies to individual stocks as well as the S&P 500 index. In short, distribution days don't work as advertised.

Rob Hanna found the same thing. In his blog, he writes,

Needless to say these [Hanna's] results are horrible. It appears that following a bout of distribution is NOT a good time to be selling. ...Is this a new phenomenon? Did distribution day counting formerly work and in recent years it has failed? That might explain why IBD [Investor's Business Daily] has discussed it for so long. Sadly, no. While the results have been helped out by some horrible bear markets in the last decade, it's never been a winning concept.

-- Thomas Bulkowski

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Monday 7/12/10. Market Monday: The Week Ahead

I bought a hummingbird feeder and nectar (contains one or more of the following: sucrose, two all-beef patties, special sauce, lettuce, cheese, pickles, onions, sesame seed bun) on Saturday and hung it on my back porch that evening. It's supposed to attract hummers.

It worked!

As I write this, one is parked across the street.

My Prediction

Picture of the Dow industrials on the daily scale.

Shown on the chart is the Dow industrials on the daily scale. Outlined in blue is a broadening bottom pattern. Price bounces between two diverging trendlines. The breakout from a broadening bottom is upward 53% of the time.

I expect a downward breakout or at least price to head lower this week. Why? Look at the last three candles. Each one is shorter than the prior one. That suggests upward momentum is slowing. The bulls are getting tired.

Also, computing a 62% Fibonacci retrace of the move down from A to B appears on the chart as a horizontal magenta line. That is near where price ended on Friday. The 63% number is a common turning point. It also matches the top of a congestion region in the May-June time frame.

Looks like Wednesday could be the big move day this week. The Federal reserved reports then and retail sales come out, too.

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A Brief Look Back

Picture of a flower and bug from my garden.

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

Monday: Holiday or other weird event!
Tuesday: Up 57.14 points.
Wednesday: Up 274.66 points.
Thursday: Up 120.71 points. Initial jobless claims were better than expected. Consumer credit narrowed from the prior period.
Friday: Up 59.04 points. Wholesale inventories climbed.

For the Week...

The Dow industrials were up 511.55 points or 5.3%.
The Nasdaq composite was up 104.66 points or 5.0%.
The S&P 500 index was up 55.38 points or 5.4%.

Year to Date...

Dow Industrials
     9.4% down from the high of 11,258.01 on 04/26/2010.
     6.1% up from the low of 9,614.32 on 07/02/2010.
Nasdaq
     13.4% down from the high of 2,535.28 on 04/26/2010.
     6.6% up from the low of 2,061.14 on 07/01/2010.
S&P 500
     11.6% down from the high of 1,219.80 on 04/26/2010.
     6.6% up from the low of 1,010.91 on 07/01/2010.

Top

Economic Reports

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

ReportTimeA-F
Rating
Description
Trade balance8:30 TC+Signals balance of exports & imports.
Treasury budget2:00 TDTracks budget deficit. Important in April (tax filing).
Retail sales8:30 WA-Reports total retail sales (not services). Are people spending?
International trade8:30 WC+Import/export prices, trade balance. US economy vs others.
Business inventories10:00 WC-Reports manufacturing, wholesale, retail inventories.
Crude inventories10:30 W?My guess: Measures oil inventory.
FOMC Minutes2:00 W?Minutes of the prior Federal Reserve meeting.
Initial jobless claims8:30 ThC+Counts people filing for state unemployment benefits.
Producer price index8:30 ThB-Measures wholesale goods cost. An indication of future inflation.
Industrial production9:15 ThB-Production of utilities, mines, and manufacturers.
Capacity utilization9:15 ThB-Gauges economic activity, hints of inflation.
Consumer price index8:30 FB+Inflation report. Measures cost of goods and services.

Options Expiration

The following is courtesy of the Options Industry Council.

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

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

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Swing and Position Traders: Chart Pattern Indicator

As of 07/09/2010, the CPI had:

4 bearish patterns,
93 bullish patterns,
488 patterns waiting for breakout.
The CPI signal is 95.9%, which is bullish (>= 65%).

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

Buy-and-Hold: 12-Month SMA

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

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Earnings, Chart Patterns & Industries

Earnings season will be starting in about 2 days.

Large numbers of bullish or bearish patterns can signal short to intermediate term market trends. The most frequently appearing chart patterns in the stocks, indexes, and long-only ETFs I follow during the last month were:

FoundPattern Name
107Pipe top
16Triangle, symmetrical
14Broadening bottom
12Target price
7Head-and-shoulders top
7Triangle, descending
7Triple bottom
5Rectangle bottom
5Head-and-shoulders bottom
5Falling wedge

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

This WeekLast Week
1. Shoe1. Shoe
2. Computers and Peripherals2. Computers and Peripherals
3. Retail Building Supply3. Retail Building Supply
4. Toiletries/Cosmetics4. Short ETFs
5. Trucking/Transp. Leasing5. Insurance (Life)
48. Homebuilding48. Oilfield Svcs/Equipment
49. Securities Brokerage49. Securities Brokerage
50. Oilfield Svcs/Equipment50. Internet
51. Alternate Energy51. Coal
52. Coal52. Alternate Energy

-- Thomas Bulkowski

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Thursday 7/8/10. The Coming Bear Market

Picture of the SP 500 index on the monthly scale

Based on Wednesday's action, you'd never guess that I had turned bearish. Below are my reasons. In short, we will have a bounce here that will retrace a portion of the prior down move, but then the party will be over. I expect the indexes to move lower in August. I am using this jump up to raise my stops and squeeze as much money out of this market.

# # #

In preparing for my Market Monday post, the report said that all of the major indexes had slid below their 12-month simple moving averages.

That's bad news.

Picture of a flower

When that's happened in the past, namely in 2000 and 2007, it's led to a bear market. Click the link for details and a chart.

I show an updated chart above. This is courtesy of Bigcharts.com. It shows the S&P 500 index on the monthly scale with a 12-month simple moving average applied. In late 2007, the index closed below the moving average, signaling more down coming and that's what happened. In June 2010, it happened again.

With bad news taking the market lower and good news not pushing it much higher, that led me to believe that we are going into another bear market. So, I moved my IRA money into cash with plans to reinvest after the market bottoms in September or October. If the market looks to still be heading down, then I'll wait. September, as you know, is the worst performing month of the year, so I want to avoid that one.

With my buy-and-hold positions, I reviewed each one and placed conditional orders on them. These come in many forms, each of which has a stop loss but some also have an upward target. In other words, if xxx stock reaches 23 then sell it (an upward target) or if it hits 19, then sell it (a stop loss). These "OCA -- one cancels another" orders are quite useful. If either order triggers, it cancels the remaining order.

If I am wrong about this, then I'll have cashed out of many positions that I wanted to hold for the long term. If I am right, then I've at least protected my retirement funds from being whacked like they were in the 2007-2009 bear market.

-- Thomas Bulkowski

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Tuesday 7/6/10. Market Monday on Tuesday: The Week Ahead

My Prediction

Picture of the gold ETF (GLD) on the daily scale.

Shown is a picture of the SPDR gold shares (GLD), a gold based exchange traded fund, which used to be called streetTRACKS gold shares.

I show an ascending triangle with upward breakouts at A and B. These little nubbins are the type of things that remind me of the stubble that my shaver misses each morning. They drive me nuts.

Traders probably feel the same way. They have an upward breakout only to see price reverse not once but twice. The pattern busts when price breaks out downward at C. This type of random behavior is why I grew to dislike ascending triangles. Price tends to breakout upward but then doesn't rise far before collapsing. It's as if everyone sees the triangle and plays it. They all buy at the breakout leaving few left behind to continue pushing price higher. Selling pressure overwhelms buying demand and down goes price.

The red vertical line is important. Do you know why? The line highlights the apex of a triangle and the apex is often a turning point. In fact, the research study at the link concludes that "Price reaches a minor high or minor low 75% of the time within a few days of the triangle apex. Price turns from down to up or up to down 60% of the time."

I expect that when GLD hits the red line, you'll see if form a minor low there and start moving up. Judging by the distance, the turn will come in just over a week. This is a guess, of course, and my prediction is based on probability, too, so anything can happen.

# # #

The 12-month simple moving average has slipped below the various indexes. I show that in the text below (see "Buy-and-Hold: 12-Month SMA"). It suggests but does not guarantee that we are headed into a bear market. If it's correct, then you'll want to consider taking appropriate action.

# # #

I added a table (below) in this report on chart pattern counts. This was prompted by an inordinate number of pipe tops appearing recently. I counted them and they total 103 over the last month. A high number of bearish patterns, such as a pipe top, suggests a downward move in the works.

A Brief Look Back

Picture of a flower.

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

Monday: Down 5.29 points. Personal income dropped and was less than expected.
Tuesday: Down 268.22 points. Consumer confidence plummeted.
Wednesday: Down 96.28 points. Chicago PMI dropped but remained higher than expectations.
Thursday: Down 41.49 points. Initial jobless claims climbed, construction spending fell
Friday: Down 46.05 points. The employment reports came in weaker than expected.

For the week...

The Dow industrials were down 457.33 points or 4.5%.
The Nasdaq composite was down 131.69 points or 5.9%.
The S&P 500 index was down 54.18 points or 5.0%.

Economic Reports

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

ReportTimeA-F
Rating
Description
Crude inventories10:30 W?My guess: Measures oil inventory.
Initial jobless claims8:30 ThC+Counts people filing for state unemployment benefits.
Consumer credit3:00 ThD-Measures auto, credit card and other debt.
Wholesale inventories10:00 FD-Wholesale sales and inventory statistics.

Options Expiration

No options expire this week.

Swing and Position Traders: Chart Pattern Indicator

As of 07/02/2010, the CPI had:

18 bearish patterns,
0 bullish patterns,
200 patterns waiting for breakout.
The CPI signal is 0.0%, which is bearish (<= 35%).

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

Buy-and-Hold: 12-Month SMA

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

Other

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

Large numbers of bullish or bearish patterns can signal short to intermediate term market trends. The most frequently appearing chart patterns in the stocks, indexes, and long-only ETFs I follow during the last month were:

FoundPattern Name
103Pipe top
26Triangle, symmetrical
25Head-and-shoulders bottom
22Horn bottom
18Double Bottom, Adam and Adam
17Big W
14Double Bottom, Adam and Eve
13Pipe bottom
11Falling wedge
10Double Bottom, Eve and Adam

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

This WeekLast Week
1. Shoe1. Shoe
2. Computers and Peripherals2. Furn/Home Furnishings
3. Retail Building Supply3. Computers and Peripherals
4. Short ETFs4. Insurance (Life)
5. Insurance (Life)5. Retail Building Supply
48. Oilfield Svcs/Equipment48. Securities Brokerage
49. Securities Brokerage49. Coal
50. Internet50. Internet
51. Coal51. Oilfield Svcs/Equipment
52. Alternate Energy52. Alternate Energy

-- Thomas Bulkowski

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Picture of a flower.

Monday 7/5/10. Market Holiday

Normally I don't post on a holiday, but I wanted to brag about an accomplishment. I achieved something that most men just dream about but have never tried.

I replaced my plastic weed-eater line with metal wire!

The wire lasted about a minute before it broke off and embedded itself in the ground so my lawnmower could hit it. As an added feature, the weed-eater vibrated much more violently than usual while the wire was attached.

# # #

Since I have the space, on the right is another wonderful picture from my garden. It reminds me of a cartoon person's face with two eyes and a flat mouth.

 

-- Thomas Bulkowski

 

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Thursday 7/1/10. How to Tell a Bear Market Bottom

Picture of my bicycle near a tunnel.

I was riding my bike, minding my own business when my steering felt like I was turning through mud. Of course, it was the front tire going flat. The good news is I had a spare tire in a pouch behind the bike seat and tools in another pouch. The bad news is I couldn't get the nut unloosened around the valve stem.

Oops.

Eventually I worked the nut loose and soon had the tire changed and pumped up halfway. It still felt as if the bike was driving through mud so I gave up on my desire to power my way back home. I only averaged 16 mph on the 15 mile course around town. That's not bad for a man approaching 80. I'll let you know what it's like in about 30 years when I get there.

# # #

Market Bottoms

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. 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. The point is, you must have a higher bottom before the market can turn from bear to bull.

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.

Picture of a house cat.

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.

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.

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, but that's another story.

-- Thomas Bulkowski

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Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Use the best: Linux for servers, Mac for graphics, and Windows for Solitaire.