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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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Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 04/21/2017
20,548 -30.95 -0.2%
9,134 7.68 0.1%
706 4.81 0.7%
5,911 -6.26 -0.1%
2,349 -7.15 -0.3%
YTD
4.0%
1.0%
7.0%
9.8%
4.9%
Tom's Targets    Overview: 04/17/2017
20,100 or 21,150 by 05/01/2017
8,500 or 9,500 by 05/01/2017
725 or 685 by 05/01/2017
5,950 or 5,650 by 05/01/2017
2,275 or 2,425 by 05/01/2017
Mutt Winners: None YTD

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

The following are my comments on market action, updated each trading day as time allows. You should not interpret anything I say as advocating buying or selling any security. See the privacy statement and disclaimer for more information.

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Monday 3/31/08: Nicor Symmetrical Triangle

Symmetrical triangle in GAS on the weekly scale

I added this stock to my shopping list on Friday. The chart shows Nicor (GAS) on the daily scale. A triple top appeared at peaks 1, 2, and 3, confirmed when price closed below the lowest valley between the three peaks. Between peaks 1 and 2, earnings were announced and that took price down. Another earnings release in late February also forced price lower. The company is a gas utility yielding 5.7% annually, which beats what you can receive from your money market funds by a long shot.

The fundamentals on this company are weak but Standard and Poors rates the stock a buy (as of Feb 22) with a $41 target, Ford Research says hold. Ford also says that the stock should experience average performance in the next 3 months based on the price trend over the last year. I have found Ford’s predictions useful but cannot say how accurate they are (it is on my to-do list...to figure out how they make such predictions).

What I like about this stock is the tight symmetrical triangle highlighted in red in March. An upward breakout from this could see a rise back to the confirmation price, maybe approaching the launch price of 42 (where the decline began). I look at this setup as a Big W type pattern, one with a tall left side. We will have to wait and see what the right side of the W looks like.

I do not own the stock, but it is on my shopping list, so I may buy some if price breaks out upward. I think a good buy price would be at 34.03, slightly above the round number 34 and placing it above the triangle congestion region. Downside would be below the triangle’s low of 32.35, call it 32.33, for a potential loss of about 5%. Volatility says to place the stop no closer than 31.29, or you risk being stopped out on normal price movement. That would be a loss of 8% assuming an entry of 34.03. Target is 39, the site of some resistance setup by a prior valley (November) and congestion (the knot in early February), both shown circled in green. And while you wait for price to climb, you can collect the dividend.

Wilder’s relative strength index says the stock was over sold in early March but is mid range now. It might show bullish divergence in the future but does not indicate that yet. The commodity channel index issued a sell signal based on a crossover from the DCCI line and CCI. Thus, expect a downward breakout in the short term. If price pulls back and breaks out upward through the top of the triangle, then that would be a buy signal. Again, the 34.03 buy stop would trigger at the right price. Bollinger bands are narrowing and that means a large move is coming (periods of high volatility -- widening bands -- often follow ones of low volatility -- narrowing bands).

-- Thomas Bulkowski

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Friday 3/28/08: Pipe Bottoms

Pipe bottom in XJT on the weekly scale

As I was reviewing my stock list today (Thursday), I noticed a huge number of pipe bottoms. Could this signal a lasting bottom? Time will answer that question, but the chart shows an example of a pipe bottom on the weekly scale. Look for a twin spike that drops below the surrounding price action. You should wait for price to confirm the pattern. That means price should close above the highest peak in the two week pattern. I show that as a green line. If you do not wait for confirmation, you increase the risk of having price continue lower.

Pipes on the weekly scale work best but twin parallel lines on the daily charts also work and can give clues as to the direction price is going to take.

If you are interested in stocks showing pipes, here is the complete list I found in the 597 securities I cover. There are 65 listed, all between 3/10 and 3/17, and you can also find them on an Excel spreadsheet by clicking here. For details on the meaning of the spreadsheet columns, see the Patternz program or instruction manual. Many of the pipes have not confirmed yet, so be sure to look for that.

ACET,AYI,ALKS,AIG,ANN,ARUN,BARE,BMY,BWS,CE,CHTT,CC,CNA,CW,CY,DBRN,EMR, XJT,FDX,FLS,FRNT,FBN,GNW,GOOG,GFF,GES,HTLD,HGSI,IMCL,INCY,INFN,JCP, JAS,JOSB,LEG,LLY,LOW,M,MEDX,NTGR,NWY,NWPX,NOVN,OLN,RL POL,PCP,PFG,RJF,LUV,SPSN,SFG,STLY,SUN,TGT,TLAB,TBL,TWP, RMIX,VRTX,VMC,WERN,WYE,YHOO,IHI

This list is no longer available.

-- Thomas Bulkowski

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Thursday 3/27/08: Charlotte Russe Trade

CHIC on the daily scale

The chart shows two trades I made in Charlotte Russe (CHIC) on the daily scale. I bought the stock twice, the first time was on January 29 and I sold it four trading days later for a net profit of 8.8%. I bought because of the ugly double bottom (bottoms 1 and 2) and breakout from a small congestion region (a few day wide). I also considered it a busted head-and-shoulders top. The busted part means price broke out downward but turned around and then moved above the top of the pattern. Busted patterns often make for good trades. I did not log the reason for the sale, but I raised the stop twice along the way (based on volatility) and was not stopped out. I just decided to sell, perhaps trying to keep the gain in this volatile market. The timing of the sale was quite good, exiting near a minor high.

The second trade began on February 11 because price had continued to move up, and that means it broke out to a new high. Ten days later, the company announced a Dutch auction tender offer for a purchase price of between 18 and 20, ending March 20 but now extended to April 2. I raised the stop three times as price climbed, ending at 18.57. That is just a few pennies below the congestion region in March, shown as a green line. I narrowed the stop because I was concerned that price would break out of the congestion region and drop.

Today, (I am writing this on 3/26), the stock gapped open lower after the company forecast a weak third quarter. The stop executed and took me out not at 18.57 but at the opening price of 17.59. What was a four figure profit turned into a three figure loss. Sigh.

I am surprised that the stock moved below the 18 offer. There is no guarantee that the company will buy all of your shares at 18 (it may be prorated), but you could buy the stock now and offer it to the company at 18 or higher. You could receive between 18 and 20 a share. I am not recommending this (and I do not plan to rebuy the stock), but it is an idea.

-- Thomas Bulkowski

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3/26/08: DELL Divergence

Dell and the CCI indicator on the daily scale

The chart shows the commodity channel index (CCI, red line) and DCCI (dual CCI, the smoother looking of the two lines) indicator. The CCI measures the stock’s movement in relation to its average movement. The DCCI is an exponentially smoothed moving average of the CCI. A trading alert occurs when the two lines cross each other and/or diverge from the underlying price chart. Go long when the CCI crosses above 0% and go short when it goes below 0%.

I show the indicator along with the price chart. On the price chart, a descending triangle appears after a swift decline from almost 31 on October 31, 2007. I like the congestion zone -- the horizontal price movement of the stock -- since mid January. Coupled with the prior swift decline from about 24 in December, this reminds me of a Big W pattern.

When you combine the two charts as I show here, the bullish divergence is clear. The indicator is showing higher valleys and the bottom of the price chart is flat. This is bullish divergence because price often follows the indicator, sooner or later. When price is trending down, you look at the bottoms for divergence, not the top. If the stock were moving up, then you would use the peaks to check for divergence.

If price closes above the green trendline, it has staged a breakout and the stock would be a buy. I do not own the stock now, but I may place a buy stop at 21.19. That is above the 21 round number and above the middle peak. Hopefully, if the order is executed, it will show enough determination such that price will carry farther.

-- Thomas Bulkowski

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3/25/08: Dow Transports (^DJT) Complex Head-and-Shoulders

Dow transports on the daily scale

Shown is a chart of the Dow transport average on the daily scale. Price has formed a complex head-and-shoulders bottom chart pattern, confirmed when price closed above the red neckline. This head-and-shoulders has twin heads, a small Adam & Adam double bottom.

I shows the price target (measure rule) by the two vertical blue lines. Compute the height from the lowest head to the neckline directly above. In this case, that is a difference of 4876 - 4032 or 844. Since the full height measure only works 74% of the time, multiply the height by 74% to get an adjusted height: 844 x 74% = 633. Add this to the breakout price of 4784 (the price at which the stock crosses the neckline) to get a price target of 4784 + 633 = 5417. Call it 5,400, a round number. That target comes close to the July 2007 high of 5,487.

-- Thomas Bulkowski

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3/24/08: Circuit City

Circuit City on the daily scale

I will be on the Gabriel Wisdom radio show this evening for the full hour talking about candlesticks. Tune to the business talk radio station in your local.

The figure shows a chart of Circuit City but not one I added to my potential buy list. I do not like the company as a consumer, and do not think the company offers appreciation potential since fewer consumers have money to buy the electronics they sell.

Anyway, the chart shows an Eve & Eve double bottom on the daily chart. It will become a valid double bottom when price closes above the red confirmation line. However, you can make an early entry by buying when price closes above the green trendline drawn by connecting the peaks. The gap at A might also assist in forming overhead resistance, just as it did when price reached the confirmation line. If you were to buy now, expect price to stall at the confirmation line. Also, the industry relative strength is at 44 out of 48 where 1 is best, so this industry is well down the list.

-- Thomas Bulkowski

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3/20/08: S and P 500 Direction

The S and P 500 on the daily scale

The chart shows the S&P 500 on the daily scale. The market is nervous, searching for a direction. Until that new direction becomes clear, it may be best to sit on the sidelines and wait. Should the market turn bullish, we will know it when the average closes above the peak at B. That would confirm an Adam & Eve double bottom. Along the way, it will have to push through overhead resistance setup by the green trend line. I do not expect that to happen immediately (as the blue line shows).

I drew a horizontal line in red, connecting the two bottoms and slicing through the low at A. Although I expect weakness in the general market, I would not take a short position in the S & P. Why? The Adam & Eve double bottom will act as support. If price were to close below the red line, then that would signal more decline ahead. It would be better if it closed below A, the lowest low in the Eve bottom.

The S and P 500 on the weekly scale

If price were to move lower, how much farther would it drop? The second chart answers that. It shows the S&P 500 on the weekly scale. The tale it tells is one of caution. Even though price may move lower, there is a support zone setup by prior peaks and valleys.

From this perspective, it suggests that any downturn will be short lived. The straight-line move up from the green congestion zone (shown by the blue up arrow), has been retraced. Usually when price retraces a straight-line run, it will stop just short of the launch price. The launch price is near the bottom of the green congestion area, call it 1200. I drew the line at about 1250, so the average may move below the line somewhat before turning.

Much of this discussion conflicts with what I see in the Dow Jones Industrials, that of a drop to 11,000. The picture looks similar to the S&P on the weekly chart except that price has to drop farther before it hits the green support area. It may be that the Dow continues lower while the S&P stalls (moves horizontally). I guess we will find out what happens in time.

-- Thomas Bulkowski

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3/19/08: Housing Head-and-Shoulders Bottom?

Beazer Homes on the daily scale
Written by Thomas N. Bulkowski. Copyright © 2008 by Thomas N. Bulkowski. All rights reserved.

Arthur C. Clarke has died at the age of 90 in Sri Lanka after suffering breathing problems, according to published reports. You may remember him as a prolific author of over 100 books such as 2001: A Space Odyssey and Childhood's End. He invented the communications satellite in 1945 and was nominated for an Oscar with Stanley Kubrick for 2001: A Space Odyssey.

Tonight, the stars have another to join them.

The chart shows an unconfirmed head-and-shoulders bottom in Beazer Homes. It becomes a true head-and-shoulders bottom (HSB) when price closes above the neckline (shown in blue). None of the stocks that I will mention in a moment are confirmed, so buying them now is a risky endeavor. I show this as an example of the genre, so you can get ready for the future.

I like Beazer the best because the HSB forms at the bottom of a flat base. Once price pushes above the flat base, it stands a better chance of continuing the up move. Of course the housing industry is not the best performing of the bunch -- it ranks 29 out of 48 -- but it used to be dead last (48). What I find unusual is the number of housing stocks that are forming the same HSB pattern. Here they are.

  • Beazer Homes (BZH) -- the one shown above
  • Brookfield Homes (BHS) -- not a very pretty one
  • ITB -- This is an exchange traded fund
  • KB Home (KBH)
  • Lennar (LEN). This has a wonderful shape and that may mean it is more likely to fail
  • Toll Brothers (TOL)
  • WCI Communities (WLI)

I mention the fine shape of the HSB in LEN. It has been my experience that the best looking patterns have a higher probability of failing, but this is not based on measured results, just a feeling.

-- Thomas Bulkowski

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3/18/08: GLD Rush at End?

GLD on the daily scale
Written by Thomas N. Bulkowski. Copyright © 2008 by Thomas N. Bulkowski. All rights reserved.

The chart shows GLD, the exchange traded fund based on the price of gold. Two symmetrical triangles appear on the chart and both act as continuation patterns. Nothing exciting there, really, and I have reported on those patterns before in GLD.

However, the nightly news this evening had a report that said for weeks now, people have been having parties where you bring your gold jewelry, someone weights it, examines it, and they buy it from you right on the spot. They send it to someone that melts it down into bars. This suggests we must be near a top. Why? Because it made the national news and because people are actually doing this. They are flooding the market with gold. How high can gold go if the supply of this non-perishable item goes unchecked? Think about it. I am not saying price will reverse tomorrow, but we must be getting close to the top. Trade accordingly.

-- Thomas Bulkowski

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3/17/08: Dead-cat Bounce in Bear Stearns

Bear Stearns on the daily scale
Written by Thomas N. Bulkowski. Copyright © 2008 by Thomas N. Bulkowski. All rights reserved.

The chart shows what happened to Bear Stearns as of Friday’s close. News reports say that JP Morgan has purchased the company for $2 a share. I guess there is a reason the company was called not Bull but Bear Stearns. For the employees with $100,000 in their 401K company stock purchased back in October 2007 for $134 a share, it is now worth less than $1,500. Plus, they will likely be out of a job soon. And all I had to worry about this weekend was an infestation of aphids in my arborvitae.

One wonders who will be next? It is probably a good time to review the dead-cat bounce (DCB) chart pattern. When a stock tumbles like BSC did on Friday, usually there is a gap on the chart because news of troubles are announced when the markets are closed. The decline can span the range from 15% to 70% or more, depending on the severity of the news. A frequency distribution says that 46% of stocks make a lower low the next day (that is, the day after news takes the stock down). In coming days, 17%, 9% and 3% of stocks make lower lows, respectively, but the average decline takes 7 days.

Picture of a dead cat bounce

Once the decline ends, the bounce phase begins. The rise in the bounce averages 28% but takes over 3 weeks, so be patient. When you see price cresting, then either get out of a long position or start turning bearish (buy puts, go short, and so on). If there was a gap during the event decline, the bounce closes the gap 22% of the time. I found that the larger the decline, the taller the bounce, just like dropping a ball versus throwing it down.

Once the bounce phase completes, the post bounce decline sets in. This decline is slower, taking price down 30% in 49 days, leaving price below the event low (the lowest low in the stock so far), by 18%. Is that the end of the decline? Maybe or maybe not. If the DCB was caused by an earnings surprise (usually), another dead-cat bounce occurs 26% of the time within 3 months and 38% will DCB again within 6 months.

What does this mean for your stocks? The news certainly is not bullish. More bank bailouts might be coming so remain in cash or tighten those stops. I will likely be stopped out of my small positions shortly. I am 39% in cash and the reason that is so low, is because long term buy and hold positions account for 48% of my holdings. Those are the ones I hold on to during turbulent times (think utility stocks and other defensive issues). They show the most potential but will take years for them to push through the layer of dirt and sprout.

-- Thomas Bulkowski

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3/14/08: Dow Industrials

Dow industrials on the daily scale
Written by Thomas N. Bulkowski. Copyright © 2008 by Thomas N. Bulkowski. All rights reserved.

Shown is the Dow Jones industrial average on the daily scale. I thought a symmetrical triangle had formed but it certainly is not obvious from this chart. Anyway, an Adam & Adam double top appears at peaks A and B, confirmed when price closed below the low between the two peaks at C (horizontal red line). At D, the average has moved up and formed a pullback. It is often easy to miss a pullback or throwback and their implications. If I am correct, price has an 87% chance of continuing to decline. By that I mean there is only a 13% chance that price will close above the higher of peaks A and B. That is not impossible, but I think it’s unlikely.

I do expect the move up to continue in the next few trading days, especially since everyone expects the FED to lower rates next week. I am not sure if the market will drop because the cut is expected and it is never large enough or view the easing as good news. I suspect that the market will move up and then begin to roll over. The reason I expect the market to suffer is that even though the bad news is out, there is more to come. The mortgage interest rates that were reset recently or have yet to reset will take months before people discover that they cannot pay the bill. Then, the holders of the note will give them a grace period before they begin proceedings to foreclose, and even longer before it is completed. All of that takes time and the exact amount will not be known until people actually start defaulting on their obligations.

However, the markets look 6 months out. This does suggest that we are closer to the bottom than the top. For all I know, we are forming a double bottom here, shown in the charts as the twin valleys E. It won’t become a true double bottom until price closes above the higher of the two peaks at A and B. The twin bottoms suggest a support area. If price drops below this support then the next support zone is 11,200 to as low as 10,600. My guess is a decline to 11,000. That’s a round number and it erases most of the straight-line move up. In other words, price will often retrace most of the way back to the launch price. A full retrace would be 10,680 but usually price pulls out of the dive before actually hitting ground. I am bullish for the next few days (until after the FED move next week) and then I will turn bearish, depending on how the markets react. I show what I think will happen by the green line.

-- Thomas Bulkowski

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3/13/08: ZEP Trade

Zep on the daily scale
Written by Thomas N. Bulkowski. Copyright © 2008 by Thomas N. Bulkowski. All rights reserved.

I have been trying to focus on long term holdings and followed the advice of Peter Lynch, that of buying spin-offs because they are well capitalized, often well managed with eager people wanting to perform. So, I bought Zep. Here is a portion of my notebook entry for the trade.

 
Today's date: 02/01/2008
Order details: bought using a limit order, computed using the average of prior candle (1/31/08) high/low: (16.55+15.75)/2=16.15. I expected a 50% retrace.
Date bought: 2/1/2008
Stop: 14.46 -16.9%. Stop used: 14.13, below the minor low
Upside target: ?
SAR: none
Next earnings: early April
Weekly scale (industry, too): N/A
Indicators: RSI: oversold. CCI: buy 2 days ago.
Buy reason: Peter Lynch play: buy spin-offs. With the economy I believe will recover, this may do well since it provides janitorial supplies and such. I think those things are needed regardless of the economy.

3/6/08 Stop raised to volatility stop setting: 15.47

3/12/08 This has double topped, in my opinion, and it's poised to drop. Yesterday the dow was up 416 and this stock barely budged. Time to sell.

The entry was unusual, using a Fibonacci retrace of the prior candle height to determine the buy price. I was filled at 16.15. Then the stock dropped but it did not bother me because it was a long term holding (supposedly). Price actually dropped to the 14.46 volatility stop setting recommended by my program, but my stop was below that, so it wasn’t hit. Then price moved up forming a rounding turn and then a double top. When price began receding from the second high, I knew the play was over. Sell justification was the same as my Hecla Mining trade, that of price reaching an old high and tumbling. Although there is a 65% chance that price will not make it down to the confirmation price (the lowest valley between the two lows, and 65% is based on research), in this market environment, I did not want to take the chance.

As the inset shows, price formed a doji yesterday at point A even though the Dow was up 416 points. Yes, price did close higher but I felt it should have done much better (a 2% rise versus a gain of 3.5% for the dow). My guess is that the markets might rebound due to the FED manipulating interest rates but then it will resume the downtrend. I did not want to be in the stock if it is going down. So, I day traded the exit and received a fill of 16.34, or about 1% above my buy price. The stock closed down $0.30 or -1.8% today (3/12).

Expanding on the notebook entry, I use a volatility stop so that I do not place it too close to be stopped out on normal price action. In this case, since it was supposed to be a long-term holding, I moved the stop below the prior minor low (the low on January 23). If price had declined and touched my stop, not only would I have been pissed, but I would have had a tidy loss (12.5%). The 16.9% volatility stop measured from the high of 17.41 on 2/1 and not the buy price.

As a long term holding, I did not have a target price. Those are hard to set when it is trading at a new high and this is a spin-off anyway (just a few months old).

SAR means Support and Resistance. Since price was making a new high, there is no overhead resistance to worry about.

RSI is the Wells Wilder relative strength index. CCI is commodity channel index. I also follow Bollinger bands, but it did not appear due to lack of price data.

-- Thomas Bulkowski

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3/12/08: ALK Trade?

Alaska Air Group on weekly scale
Written by Thomas N. Bulkowski. Copyright © 2008 by Thomas N. Bulkowski. All rights reserved.

I do not own this stock nor do I intend to buy it. This is just an exercise to see how I go about determining what stock to buy.

The chart shows Alaska Air on the weekly scale. Notice the large drop from A to congestion at C and on down to B. A quick decline often follows a quick rise but is the reverse true? A chart pattern called a Big W represents one answer. It assumes that a rise, quick or not, will follow the steep decline. In these markets, I often see the quick decline but the rise does not make it back to the launch price (point A).

A Big W has a reversal pattern at the base, and it often is a double bottom, but I include any reversal pattern. In this case, there is a right-angled and ascending broadening formation (shown between the two red lines. The pattern has a flat bottom and an up-sloping top. The congestion area at C has limited the upward price move.

The reason I chose this stock is because the transports are down just 3.8% this year, compared to double digits for the other indices. Anyway, notice the strong down trend from D to E. My research says that 66% of stocks breakout downward from this broadening pattern. I show one possible scenario in green. Price bounces off the bottom of the pattern and moves up to D. If that happens, that would be a nice trade in and of itself. I would expect overhead resistance at D, setup by C, to make price pause. If it were to breakout upward from D, then a return to F might be a good target (shown as Target on the chart).

Why don’t I like this stock as a trade? The general market is trending downward, even if the next few days we see a sucker’s rally, the primary trend is still down. Broadening patterns do not work as well as I hope. They are unreliable. The price of oil (fuel oil, in this case), is moving up, not down. That is why the airlines are near the bottom of the yearly price range and not the top. The industry relative strength is 38 out of 49, where 1 is best. If 66% of right-angled broadening patterns breakout downward, then that is the breakout direction to expect.

My guess, and it is only a guess, is that price will move up like my red line shows. Price will bounce off the bottom of the pattern, climb and then do a partial rise. That means price will reverse and breakout downward. If I am right, then there is no reason to buy the stock.

One possible trade would be to wait for price to crest at the top of the partial rise and then go short. By "short," maybe a put or finding an ETF that shorts the airline industry would be better. I don’t like to go short (the broker charges you margin interest and you have to pass on any dividends).

Is this all there is to analyzing the trade? No. I would examine the stocks in the industry, check the broker reports and look at the fundamentals, including the fuel oil trend (if I can find it). Maybe the industry is making a bullish turn here? That would change the entire scenario. But I still don’t like the "loose" looking broadening pattern. Loose patterns tend to not work well. I prefer nice tight congestion zones and tight trading ranges not ones in which price flies every which way except the direction you expect.

-- Thomas Bulkowski

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3/11/08: Markets YTD

Written by Thomas N. Bulkowski. Copyright © 2008 by Thomas N. Bulkowski. All rights reserved.

Q: What do you want from this blog? By that, I mean would you prefer I focus on market trends, individual issues, domestic or foreign markets, what? Send your answers to me, Tom, at . And the reason you see my name as an image instead of a link is to prevent the robots from finding my email address and adding it to their spam generators.

I am pressed for time today, so no flashy pictures. Let me just give you a year-to-date update on the markets (without dividends).

Dow Jones Industrials: down 11.5%
Dow Jones Transports: down 3.8%
Dow Jones Utilities: down 10.8%
Nasdaq Composite: down 18.2%
S&P 500 Index: down 13.3%

I know that this recent decline of the last few days must end sometime. When it does, we will see a bounce. At the top of that bounce, I will consider buying one of the following ETF funds.

DOG: DJIA short 1x ProShares
DXD: DJIA short 2x ProShares
PSQ: Nasdaq 100 short 1x ProShares
QID: Nasdaq 100 short 2x ProShares
SH: S&P 500 short 1x ProShares
SDS: S&P 500 short 2x ProShares

The 1x and 2x tells how the exchange traded fund moves in relation to the underlying index. If you go to finance.yahoo.com, type in the symbol and click Profile (left side of the page), it will explain how the fund works. I expect this downturn to continue, probably after the FED cuts rates and the markets bounce because of it (but it might not becuase it is probably already factored in).

-- Thomas Bulkowski

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3/10/08: Dow Transports (^DJT)

Written by Thomas N. Bulkowski. Copyright © 2008 by Thomas N. Bulkowski. All rights reserved.

Before I get to the transports, let me tell you a story. After I wrote my first book, Encyclopedia of Chart Patterns (first edition), I used to read the customer reviews posted on Amazon.com. At the time, I had over 30 (long since erased by them and replaced with new ones). On person said that the book was worthless because it did not include channels. Another said that the only thing good about my book was the five page visual index at the back. Now, the book is widely regarded as a classic and has achieved best selling status.

I sat back and thought that after 13 months of hard work writing the book, I had done something remarkable. I had researched over 15,000 chart patterns, clicked over a million times to catalogue them, and produced statistics on how well they worked. No one had ever done that before, creating a work of art that was as easy to use as it was informative. And those bad reviews were my reward.

In the early stages of this website, before the quizzes were posted here, I used to send them out to almost 250 people. I found out that Hotmail has a limit on the number of emails that can be sent daily, and I had reached it. So, I decided to stop sending them out and posted the quizzes on my website instead. After that decision, I received hate mail. It flamed at me for stopping this service, said that I was cheap, and accused me of profiting from it. I, of course, do not charge for anything on my website and never have. I do have ads and a link to Amazon from which I derive a bit of money. Both help pay for the cost of this site, but the choice to click on an ad or spend money at Amazon.com is yours.

After publication of my book, Trading Classic Chart Patterns, I received a phone call from someone that claimed the art work on the dust cover matched one of his secret chart patterns. The call put me on the defensive because it sounded as if he was going to sue me, even though I have almost no control over cover art.

On Friday, I was looking at websites that link to mine and found one in Norway that had taken my book review, slapped their name on it, and posted it on their website in violation of international copyright treaties. They stole other content from me as well, and now claim it as their own.

I have a new book out, Encyclopedia of Candlestick Charts, and it is a remarkable book. I researched over 100 candlesticks and used nearly 5 million candle lines to create a book almost 1,000 pages long that tells almost everything I could think of about how candles behave and how to trade them. No one had done that before.

Today I checked the Internet and found that 11 websites are offering illegal copies of my books, and I’m wondering if that is my reward for offering ground-breaking research to the world?

All of this leaves me with one thought: I’m disappointed in humanity.

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Dow transports on the daily scale

The figure shows the Dow transports (^DJT) on the daily scale. The decline that I have been expecting since my first posting on the tranys in early February, looks as if it is underway. Overhead resistance shown as a green line drawn along the peaks caused the average to reverse at the triple top marked with the three Bs. Price has formed a partial rise at A and continues lower. If symmetry takes hold, the transports should find support near the November low, making the pattern look like a head-and-shoulders bottom. That might be possible since it has taken longer than I expected for the tranys to move downward. However, in this market, anything can happen so I would not be surprised to see the transports continue down to the price of the January low.

-- Thomas Bulkowski

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3/7/08: Jo-Ann Stores (JAS)

Jo-Ann Stores on the daily scale
Written by Thomas N. Bulkowski. Copyright © 2008 by Thomas N. Bulkowski. All rights reserved.

The chart shows Jo-Ann stores on the daily scale. From the low of 9.03 on January 16, price climbed to a high of 17.34 on February 14, a rise of 92%. I allow rises of over 90% in less than 2 months to qualify as high and tight flags. The theory says that price will pause for a few days or weeks and then continue higher for an average rise of 69% before the trend reverses.

I show this one as an example of what happens to many HTFs. Price does not close above the top of the pattern (shown as the red line) but tumbles instead. That is why I suggest waiting for a close above the highest high in the flag -- flagpole combination instead of just waiting for price to close above the flag’s trendline (think of a congestion region with the top of it sloping down, following a trendline. In a flag, a close above the trendline would normally signal a buy).

For an example of a high and tight flag that worked, see Stillwater Mining company (SWC). The HTF appears as a small congestion region from February 11 to 14 after a flagpole climb from 7.42 to 15.42, or 108% in about 3 weeks. Price then continued up to a high of 22.72, two days ago, for an additional climb of 47% from the flagpole high. It has dropped since then (closing today, March 6, at 18.37).

-- Thomas Bulkowski

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3/6/08: Hong Kong ETF (EWH)

The Hong Kong ETF (EWH) on the daily scale
Written by Thomas N. Bulkowski. Copyright © 2008 by Thomas N. Bulkowski. All rights reserved.

The chart shows the only interesting ETF or index that is worth talking about today. After a symmetrical triangle formed at the end of last year, a new pattern emerges, called a falling wedge. A falling wedge highlights price bounded by two converging and down-sloping trendlines. Upward breakouts occur most often: 68% of the time and that should not be a surprise, given the shape of the pattern (down-sloping trendlines).

The measure rule is used to predict a price target and it says that price should climb back to the top of the pattern (point A), but that only works 70% of the time. That’s still not bad and in this case, it corresponds to round number support near 20. That is where I would expect price to stall if it does, indeed, breakout upward. But first, it has to push through overhead resistance setup by peaks in February (B and C) at about 19.40.

Since this is an exchange traded fund and trying to figure out what the ETF contains is difficult, the fund may blow through resistance without stopping. It all depends on what the underlying securities do.

-- Thomas Bulkowski

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3/5/08: The CACH Trade

The Cache stock on the daily scale
Written by Thomas N. Bulkowski. Copyright © 2008 by Thomas N. Bulkowski. All rights reserved.

The apparel industry (or specialty retailers, if you want to lean in that direction) has a lot in common with the housing industry: Both are suffering. I refer you to the chart of Cache. The stock formed an Adam & Adam double bottom. This became a true double bottom when price closed above the confirmation price, A. I became very interested in the stock when I learned that they added 1 million shares to an existing 2 million share repurchase plan. That means the company was on track to reducing the number of shares by 18%. When Savient Pharmaceuticals (SVNT) bought back 16% of their shares during a Dutch Auction tender offer, the stock moved from a high of 6.66 to 24.55 in less than 1.5 years. I was hoping, and still am, for a similar move in this stock. Thus, if you want to know what I’m buying, this is it.

Anyway, the double bottom confirmed and price formed a handle of sorts -- a consolidation region with a flat bottom and descending top. After I sold the stock, I connected the lines and formed a descending triangle, but I'm jumping the gun. I bought the stock as a throwback to the double bottom. It looked like the stock was moving up, so before the close I bought the stock and received a fill at 10.62. Here’s what I wrote in my notebook: "Buy reason: throwback to AADB with 21% stock repurchase program in effect and new CEO promoted within. This is a management turn around play, but it's an upscale mall retailer and I don't like that model. I fear that this will triple bottom. Price has retraced 38% of prior up move. Lots of little insider buying recently 700 to 5k shares (13 buying, none selling in last 6 months). Ford Equity said expect below avg performance in next 1 to 3 months."

I thought the buyback was for 21% of shares outstanding but a news report places it at 18%. Their report was in January and I was using late February numbers, so maybe fewer shares were outstanding when I checked. Price retraced 38% of the move from B to C and that I felt was a support zone. That is true because price formed a flat bottom on the descending triangle. I liked what I saw so I bought the stock.

I placed a stop not where volatility said to (at 9.21 for a massive 16% potential loss), but below the horizontal support zone of the descending triangle and also below the round number 10, at 9.93. I did not want to place it too close to the triangle for fear of being stopped out on normal price fluctuation. The next day, the NEXT day, I was stopped out when the Dow lost 315 points, for a 6.9% loss. I looks now like my prediction of a triple bottom may be coming true. That remains to be seen because price can reverse at 50% (where it’s at) to 62% of the BC move. I now expect this to reach the 62% retrace and to reverse there, but that is just a guess. Whatever it does, I hope it takes at least a month so I can clear the wash sale rule and buy it again.

-- Thomas Bulkowski

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3/4/08: Dow Utilities

The Dow Utility average on the daily scale
Written by Thomas N. Bulkowski. Copyright © 2008 by Thomas N. Bulkowski. All rights reserved.
I own one utility stock, so I have a vested interest in how the utility average does. In the last week, I read of an analyst that says the utilities are in for a drop, that despite trading near or at the yearly lows, they are overpriced. That may or may not be true but to me, it represents a buying opportunity. Price will recover this year and while it does, you can keep the large dividends.

However, with fuel costs so high, it is another industry under pressure from high energy costs and a slowing economy. This double barrel bummer is why price is so cheap. Before selecting a stock, be sure to gauge how safe the dividend is. Any cut in the dividend rate would not be looked at kindly, and investors would scatter, leaving behind a stock with a dead-cat bounce.

The figure shows the average and I an hoping that the red line represents a support zone. The average may decline to the level of the double bottom shown by points A and B, or it could drift lower to C. Today, the average closed higher, so maybe a turn is here but maybe not. That is the trouble with trying to buy in a downtrend. If you are right, you can make a lot of money but more often you will be bloodied. I would suggest waiting for the average to show signs of bottoming.

You can always use the measure rule for symmetrical triangles to determine how far price will drop. I won’t go through the calculation but visually, it suggests more decline ahead.

-- Thomas Bulkowski

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3/3/08: The Hecla Mining Trade

Hecla Mining stock on the daily chart
Written by Thomas N. Bulkowski. Copyright © 2008 by Thomas N. Bulkowski. All rights reserved.

Few of the trades I have made recently have I been excited to get out of as the one in Hecla Mining stock on Friday. That day, the Dow dropped 315 points, or 2.5%. Let me tell you about the trade.

I show the chart of HL on the daily scale. Price made a symmetrical triangle (red lines) in November, setting the stage for a sharp drop. Price bottomed in a congestion pattern called a head-and-shoulders bottom. The neckline connecting the two armpits, I show in green. Since the neckline slopes downward, a buy signal occurs when price closes above the line. If the neckline were to slope upward, then I use the right armpit high as the buy signal (because price may never close above an up-sloping neckline). I either missed the buy signal or chose to ignore it.

I placed a buy stop at 10.35, which is two cents above the congestion area (the small knot just before C) because I wanted to catch a breakout as soon as possible. I bought the stock at C, the white candle, and received a fill at 10.34 (due to price improvement by my broker). Since I was worried about the markets, I limited my position to half the normal size (which is twice the 1/4 positions that I have been using recently). Target was 12+ and I bought this not only for the head-and-shoulders, but the Big W.

I call a Big W any congestion pattern at the bottom with a tall left side. Here, point A marks the beginning of the Big W with the head-and-shoulders as the congestion/reversal pattern at the bottom. The theory behind a Big W is that price will rise to the launch price (A), stall for a bit and maybe form a handle, and then continue rising.

I placed a stop at 9.16, which is 11.4% below the buy price. According to volatility, that is the closest position for a stop and it was also just below a 62% Fibonacci retrace of the move up from the right shoulder low (RS = right shoulder, LS = left shoulder). If price dropped below that point, then there was a good chance that it would keep on moving down.

As the chart shows, price closed higher the day I bought, retraced for a few days and then shot upward in a straight-line run. On Thursday night, I looked at the stock and the first thing that popped into my mind was "It’s going to reverse." Sperandeo ( Trader Vic--Methods of a Wall Street Master) calls that a 2B top. Price rises up to meet the price of a prior high and fails to continue moving higher (sometimes not quite making it to the old high and sometimes rising just above it, but when price stalls, it’s time to sell), signaling a reversal. If I was thinking of selling then others were too, and in these markets, making money on the long side is a gift. Price may continue higher in the coming days but who cares? I don’t own the stock anymore. And by the way, I chose this stock to trade in part because it has a industry relative strength rank of 4 out of 49.

On paper, I had 13.8% profit in the stock, so I felt it was time to exit especially in these volatile times. I placed a limit order to sell it at 12.08. Why 12.08? Because that was the value of the apex of the symmetrical triangle at A. I know that the apex is a resistance/support point, so I felt it would coast upward to there and stall. Also, since it was near the 12 round number, it might reverse there, too.

On Friday, the pre-market trading showed the stock gapping lower. Bummer, but the gap was not too large. I hoped that price would fill the gap. I day traded it and watched price drop to 11.60 and hold. Since price was forming a base at 11.60, if it pierced that, it would go down quickly, so I vowed to sell if that occurred. I also knew that 15 to 20 minutes into the trading session, price tends to reverse direction, so I waited for that to occur. The turn came later than I expected but price moved up (and I used level II to see the bid/asked orders to determining buying demand and selling pressure. There appeared to be larger buying orders than selling).

The stock continued rising and climbed above the prior close of 11.77 and I knew that I could at least grab my 13% gain. But the stock kept moving up. I waited and hoped that it was going to hit 12. It never did. Price peaked at 11.93 and moved horizontally for a few bars. Knowing that overhead resistance at 12 was just above, I decided to sell and got out five cents below the high for the day. Price dropped substantially and closed at 11.50. On the trade, I made (after commissions and fees) 14.7% in nine days. Yippee!

-- Thomas Bulkowski

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