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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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Patterns
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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.

November 2012 Headlines


Archives


Thursday 11/29/12. Trading Thursday: Nasdaq

The index climbed by 0.8% or 23.99 points. Since 02/05/1971 the index made 347 similar moves on a percentage basis. After those moves, the next day's...
     Average gain was 0.9% on 228 occasions.
     Average loss was -0.9% on 119 occasions.
Expect the index to close higher 65.7% of the time.
Weekly, since inception on 6/14/2011:
     The prediction of the index closing higher has been right 27/46 or 58.7% of the time.
     The prediction of the index closing lower has been right 16/30 or 53.3% of the time.

Picture of the Nasdaq composite on the 5 minute scale.

Since I post this entry the night before, be sure to check how the futures are trading before the market opens. Large plus or minus numbers in the futures often sets the opening direction up or down, respectively.

I show a picture of the Nasdaq composite on the 5-minute scale from Wednesday's trading.

I couldn't find any chart patterns except a channel. I show that here as two parallel or nearly parallel lines. Once you see the channel, you can buy at the bottom of it and sell at the top if the channel slopes upward. Excursions outside the channel may serve as a warning of a trend change. Sometimes, though a new channel may develop that moves upward at the slower rate.

The probabilities suggest a higher close tomorrow (Thursday). That could be right but the index is in the middle of overhead resistance. If we have a big day, the index could pierce that, either up or down. My feeling is that since today was such a tall day, tomorrow will be a short one (narrow trading range). That would make an inside day (lower high and higher low). Trend traders may want to go golfing or skiing or whatever you do when the market is likely to go against you. Or you can have your nose operated on. Read below.

$ $ $

Picture of my dog.

I'd like to tell you what happened at the dermatologist on Tuesday.

I suspected I was in trouble when the nurse welcomed me into the exam room by saying, "Gosh you're an ugly wart." Then she blushed. "Did I really say that out loud?" I was hoping that she was referring to the growth on my nose, but it explains why I'm still single.

I closed my eyes during the procedure so I can only guess what really took place. The nurse said "You'll feel a sting. That's the needle." It felt like a mosquito bite. Ouch. No big deal. "Now you'll feel a sting for the anesthetic." Bigger OUCH.

In the background, I heard the dermatologist pulling the cord on his chain saw. It took three pulls before the thing started. "This won't hurt a bit." And he was right. It hurt like crazy (not really). "Oops," he said. "It'll grow back. In fact, I also do facial reconstruction. We have a two for one special during the holidays..."

They kept pinching both nostrils as if they were having trouble getting the blood to clot. Then I heard a scratching sound as he tried to light a blowtorch. "This is going to sting." Which it did and it also made a sizzling sound like steaks cooking on a grill. He cauterized the artery probably because he didn't want the blood spraying on his carpet.

This all took about ten minutes. They quickly put a band aid on the wound so I couldn't see what it looked like. "Put Vaseline on it for a few days to keep it moist. It'll heal faster," the nurse said.

At home, I peeled off the bandage. "What happened to my nose?"

The following table shows where Fibonacci retrace values of the day's high-low range are plus pivot points, calculated on the Nasdaq composite, sorted by value. When several are near each other (small differences), the area might act as support or resistance.

-- Thomas Bulkowski

Top

© 2012 ThePatternSite.com    Metric  Value  Diff  Close (within 10% of the high-low range for the day)? 
 Monthly S2  2,700.62    
 Monthly S1  2,846.20  145.58   
 Weekly S2  2,865.47  19.27   
 Daily S2  2,916.99  51.52   
 Weekly S1  2,928.62  11.64   
 Low  2,935.88  7.26   
 Weekly Pivot  2,947.91  12.03   
 Open  2,952.02  4.11   Yes! The Open is close to the Weekly Pivot.
 Daily S1  2,954.38  2.36   Yes! The Daily S1 is close to the Open.
 Monthly Pivot  2,956.38  2.00   Yes! The Monthly Pivot is close to the Daily S1.
 61.8% Down from Intraday High  2,957.38  1.00   Yes! The 61.8% Down from Intraday High is close to the Monthly Pivot.
 50% Down from Intraday High  2,964.02  6.64   
 38.2% Down from Intraday High  2,970.67  6.64   
 Daily Pivot  2,973.28  2.61   Yes! The Daily Pivot is close to the 38.2% Down from Intraday High.
 Close  2,991.78  18.50   
 High  2,992.17  0.39   Yes! The High is close to the Close.
 Daily R1  3,010.67  18.50   
 Weekly R1  3,011.06  0.39   Yes! The Weekly R1 is close to the Daily R1.
 Daily R2  3,029.57  18.50   
 Weekly R2  3,030.35  0.78   Yes! The Weekly R2 is close to the Daily R2.
 Monthly R1  3,101.96  71.61   
 Monthly R2  3,212.14  110.18   

Wednesday 11/28/12. What's Hot Wednesday

No cavities, according to my dentist. He also said that the majority of his patients have x-rays done once every 2 years, not annually as I thought. He approved my idea of a scan once every three years.

The visit to the dermatology was exciting, too. Much to my surprise, he sliced off the mole so I don't have to visit him again. He doesn't think it's cancerous, either. Yippee.

Two pieces of good news. I understand that bad things happen in threes, but does the same happen for good things? Maybe I'll ask my brother to buy me a powerball ticket. If it won, he'd probably keep it. Sigh.


Tuesday 11/27/12. Trading Tuesday: Dow

The index dropped by -0.3% or -42.31 points. Since 10/01/1928 the index made 958 similar moves on a percentage basis. After those moves, the next day's...
     Average gain was 0.6% on 452 occasions.
     Average loss was -0.7% on 506 occasions.
Expect the index to close lower 52.8% of the time.
Weekly, since inception on 6/14/2011:
     The prediction of the index closing higher has been right 33/55 or 60.0% of the time.
     The prediction of the index closing lower has been right 11/17 or 64.7% of the time.

Picture of the Dow industrials on the 5 minute scale.

Since I post this entry the night before, be sure to check how the futures are trading before the market opens. Large plus or minus numbers in the futures often sets the opening direction up or down, respectively.

I show a picture of the Dow industrials on the 5-minute scale from Monday's trading.

A weird looking head-and-shoulders bottom appears at LS (left shoulder), Head, and RS (right shoulder). It confirms as a valid chart pattern at A when the index closes above the red neckline. That's important, otherwise you just have squiggles on a chart.

Near the close, the index reached the target (the height of the pattern at the head low, measured vertically to the neckline) or it came very close.

Looking forward, the index will probably close lower tomorrow (Tuesday). On the daily scale, it appears to be running out of steam. The candle appears to be a hanging man, in case you're wondering Ronda. (inside joke). However a hanging man most often leads to a higher close (upward breakout), so who knows? The index is just underneath resistance setup by the corrective phase of a measured move down.

$ $ $

Picture of my dog.

I visit the dentist today (Tuesday). He'll want to do an x-ray. I put a stop to that annual practice years ago and found out that the American Dental Association recommends one x-ray every 2-3 years. That's for healthy adults. My teeth are in good condition and I can't remember when an x-ray led to the discovery of a cavity or other problem. Thus, you may be paying for a medical test that you don't need. I'm going to tell him let's do it only if there's a medical necessity. A set time schedule is crazy in my opinion. But if he can justify it, then I'll change my mind.

I also see a dermatologist today. I vowed to have my family doc cut off a mole growing on my nose but his cryogenic machine broke down. He's apparently reluctant to reinvest in his practice (he prefers to spend his bucks on a plane). The nurse suggested that if it's cancerous, I'd have to see the dermatologist anyway. Good point. So, despite my reluctance to see the specialist twice for a one-session job (once to appraise the situation and charge me bucks and the second to cut it off and charge me bucks).

One solution to this is to marry someone wealthier than me. Any takers? I've described myself as a wart sometimes, so if the dermatologist cuts off the wrong part and you don't hear from me again, you'll know why.

The following table shows where Fibonacci retrace values of the day's high-low range are plus pivot points, calculated on the Dow industrials, sorted by value. When several are near each other (small differences), the area might act as support or resistance.

-- Thomas Bulkowski

Top

© 2012 ThePatternSite.com    Metric  Value  Diff  Close (within 10% of the high-low range for the day)? 
 Monthly S2  11,920.78    
 Weekly S2  12,435.13  514.35   
 Monthly S1  12,444.08  8.95   Yes! The Monthly S1 is close to the Weekly S2.
 Weekly S1  12,701.25  257.17   
 Daily S2  12,850.38  149.13   
 Weekly Pivot  12,856.35  5.97   Yes! The Weekly Pivot is close to the Daily S2.
 Low  12,900.17  43.82   
 Daily S1  12,908.88  8.71   Yes! The Daily S1 is close to the Low.
 61.8% Down from Intraday High  12,941.53  32.66   
 50% Down from Intraday High  12,954.31  12.78   
 Daily Pivot  12,958.66  4.35   Yes! The Daily Pivot is close to the 50% Down from Intraday High.
 38.2% Down from Intraday High  12,967.09  8.42   Yes! The 38.2% Down from Intraday High is close to the Daily Pivot.
 Close  12,967.37  0.28   Yes! The Close is close to the 38.2% Down from Intraday High.
 Monthly Pivot  12,994.78  27.41   
 Open  13,008.30  13.52   
 High  13,008.45  0.15   Yes! The High is close to the Open.
 Daily R1  13,017.16  8.71   Yes! The Daily R1 is close to the High.
 Daily R2  13,066.94  49.79   
 Weekly R1  13,122.47  55.53   
 Weekly R2  13,277.57  155.10   
 Monthly R1  13,518.08  240.51   
 Monthly R2  14,068.78  550.71   

Monday 11/26/12. Market Monday: The Week Ahead

My Prediction

Picture of the Dow industrials on the daily scale.

I show the Dow industrials on the daily scale.

This pattern interests me: the measured move down. I show that on the chart from A to B. Circled is what's called the corrective phase of the pattern. That is where the stock or index pauses in a straight-line or near straight-line run down. Price corrects or retraces a portion of the down move at that location.

What's interesting is not the measured move itself, but what typically happens after the pattern completes.

After a measured move down completes (reaches B), price remains below the corrective phase 16% of the time, 35% of the time price stops rising within the corrective phase, 31% of the time price rises above the corrective phase but below the measured move down's start, and 18% of the time price continues rising above the measured move down. That's valuable information for a trader.

In short, expect the index to pause soon, somewhere between the two blue lines or even reverse.

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A Brief Look Back

Picture of my dog.

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 207.65 points.
Tuesday: Down 7.45 points.
Wednesday: Up 48.38 points.
Friday: Up 172.79 points.
Saturday: Holiday or other weird event!

For the Week...

The Dow industrials were up 421.37 points or 3.3%.
The Nasdaq composite was up 113.72 points or 4.0%.
The S&P 500 index was up 49.27 points or 3.6%.

Year to Date...

Dow Industrials
     4.8% down from the high of 13,661.87 on 10/05/2012.
     8.1% up from the low of 12,035.09 on 06/04/2012.
Nasdaq
     7.2% down from the high of 3,196.93 on 09/21/2012.
     12.9% up from the low of 2,627.23 on 01/04/2012.
S&P 500
     4.4% down from the high of 1,474.51 on 09/14/2012.
     11.9% up from the low of 1,258.86 on 01/03/2012.

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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
Durable goods orders8:30 TBMeasures orders, shipments of goods with lifespans >3 years.
Consumer confidence10:00 TB-Surveys 5,000 households for trends.
New home sales10:00 WC+Shows sales of single-family homes.
Crude inventories10:30 W?My guess: Measures oil inventory.
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 ThBMeasures economic activity; GDP deflator measures inflation.
Personal income & consumption8:30 FC+Measures sources of income to predict future demand.
Personal consumption expenditures8:30 FC+Covers durables, non-durables, and services.
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 11/23/2012, the CPI had:

2 bearish patterns,
144 bullish patterns,
492 patterns waiting for breakout.
The CPI signal is 98.6%, which is bullish (>= 65%).

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

Swing Traders: Pivot Points

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

IndexS2S1PivotR1R2
Dow Industrials (^DJI): Daily  12,773  12,891  12,951  13,070  13,130 
Weekly  12,449  12,729  12,870  13,151  13,292 
Monthly  11,935  12,472  13,009  13,546  14,083 
S&P 500 (^GSPC): Daily  1,385  1,397  1,403  1,415  1,421 
Weekly  1,343  1,376  1,393  1,426  1,442 
Monthly  1,289  1,349  1,403  1,463  1,517 
Nasdaq (^IXIC): Daily  2,932  2,949  2,958  2,976  2,985 
Weekly  2,857  2,912  2,940  2,994  3,022 
Monthly  2,692  2,830  2,948  3,085  3,204 
  • Seekinger doesn't look at the range of S2 to R2 as support and resistance levels. Rather, he considers them oversold (S) and overbought (R) areas.
  • S2 to R2 range of values across daily, weekly, and monthly periods: If two values are close together then they lend more significance to the area.
  • If the market trends on day 1, the odds rise tremendously that the market will be range bound between daily S1 and daily R1 the next day.
  • In a quiet market when traders are waiting for an important earnings announcement or economic report, look for daily R1 and S1 levels to hold and for the market to return to the daily pivot.
  • A move outside of daily R1 or S1 usually does not mean a breakout.
  • The odds suggest that the entire week's price action will remain between weekly R2 and S2.
  • Avoid going long when the market moves above weekly R2 (it's overbought) and avoid going short when price moves below weekly S2 (oversold).
  • Consider going short at weekly R1 or long at weekly S1 with a profit objective of the weekly pivot.
  • Consider going long at weekly S2 or short at weekly R2 with a profit objective of weekly S1 or R1, respectively.

Here are the formulas:

Pivot point: P = (H + L + C)/3
First resistance level: R1 = (2 * P) - L
First support level: S1 = (2 * P) - H)
Second resistance level: R2 = P + (R1 - S1)
Second support level: S2 = P - (R1 - S1)
H = high price , L=low price, C=closing price

Top

Consecutive Price Trends

Index Consecutive
Closes So Far 
% Comments 
 Dow industrials (^DJI) 1 week up 43.1%  Expect a random direction.
 2 months down 11.9%  Expect a reversal soon.
 S & P 500 (^GSPC) 1 week up 42.0%  Expect a random direction.
 2 months down 12.2%  Expect a reversal soon.
 Nasdaq composite (^IXIC) 1 week up 40.8%  Expect a random direction.
 2 months down 16.7%  Expect a reversal soon.

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

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

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

Buy-and-Hold: 12-Month SMA

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

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Earnings, Chart Patterns & Industries

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

Mutual funds will begin dividend distributions and rebalancing their portfolios for the approaching year end (starts in late November).

 Found Chart Pattern Name
22Head-and-shoulders top
15Pipe top
13Rectangle top
9Channel
8Head-and-shoulders bottom
8Dead-cat bounce
7Triple top
6Broadening top
5Rectangle bottom
5Target price

Large numbers of bullish or bearish chart patterns can signal short- to intermediate-term market trends (many bullish chart patterns can mean an uptrend will continue, for example). However, please realize that the short-term price trend could have changed since the pattern was discovered (this is especially true of pipe tops or bottoms, which are weekly patterns).

The 10 types of most frequently appearing chart patterns in the stocks, indexes, and long-only exchange traded funds I follow during the last month are shown in the adjacent table.

 

 

 

 

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

This WeekLast Week
1. Cement and Aggregates1. Homebuilding
2. Homebuilding2. Cement and Aggregates
3. Chemical (Specialty)3. Chemical (Specialty)
4. Building Materials4. Chemical (Basic)
5. Chemical (Basic)5. Building Materials
48. Semiconductor48. Semiconductor Cap Equip.
49. Electric Utility (East)49. Short ETFs
50. Shoe50. Shoe
51. Short ETFs51. Semiconductor

-- Thomas Bulkowski

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Saturday 11/24/12. Take This Quiz

The pictured book, Trading Basics: Evolution of a Trader is now available on Amazon.com. Below is a brief table of contents in the form of a quiz. Take the quiz and see how many questions you answered right (answers are at the bottom of this post). If you get too many of them wrong, then maybe you should buy the book. If you do purchase the book and like what you read, then please post a review of it at your favorite e-tailer, such as Amazon.com or bn.com. Makes a great holiday gift! For a detailed table of contents, you can find it on the My Books page.

From Chapter 2, Money Management

1. True or false: Trading a constant position size can have disastrous results.
2. True or false: A market order to cancel a buy can be denied if it is within two minutes of the Nasdaq's open.
3. True or false: Dollar cost averaging underperforms.

From Chapter 3: Do Stops Work?

1. True or false: Fibonacci retracements offer no advantage over any other number as a turning point.
2. True or false: A chandelier stop hangs off the high price.
3. True or false: Stops cut profit more than they limit risk.

From Chapter 4: Support and Resistance

1. True or false: Peaks with below average volume show more resistance.
2. True or false: Support gets stronger over time.
3. True or false: The middle of a tall candle is no more likely to show support or resistance than any other part.

From Chapter 5: 45 Tips Every Trader Should Know

1. True or false: Fibonacci extensions are no more accurate than any other tool for determining where price might reverse.
2a. True or false: Only bullish divergence (in the RSI indicator) works and only in a bull market.
2b. True or false: Bullish divergence (in the RSI indicator) fails to beat the market more often than it works.
3. True or false: Price drops faster than it rises.

From Chapter 6: Finding and Fixing What Is Wrong

1. True or false: The industry trend is more important than the market trend.
2. True or false: Holding a trade too long is worse than selling too early.
3. True or false: Sell in May and go away.

-- Thomas Bulkowski

The answer to every statement is true.

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Thursday 11/22/12. Holiday Buys

Above are pictures of my family. Yes, they are a handsome bunch. The first four are new this year (roll out begins this month). The second and third books from the left are in the process of hitting the store shelves (probably in a month or so for Fundamental Analysis and Position Trading and a month after that, expect Swing and Day Trading (although it could be until March). I received my copies of Trading Basics (the first book on the left), so it should be available shortly in stores (online retailers). Hover your mouse over the picture for more information.

If you click on the book image, you will be taken to Amazon.com. During that visit, if you purchasing anything I receive a small referral fee. Along with clicks on ads on this website, the fees help defray the cost of running this free website. The referral fee does not increase the cost of your purchase. The holidays are a wonderful time to show your support by giving a book as a gift.

If you plan to buy anything from Amazon.com, please click on one of my books. You don't have to buy the book but it passes a code to Amazon that they use for the referral program. If you like what you read, please post a customer review at your favorite e-tailer. I suggest you read the reviews with the fewest stars (lowest ranked) and rebut their claims. With the market moving to e-books, having positive reviews is becoming more important to selling copies. Selling lots of copies keeps the publisher happy and it allows me to share more of my knowledge with you (that is, if I continue to sell, the publisher will want to print the next book).

$ $ $

One of the questions, I am asked is what do I do during the holidays? I'm single and I retired at 36, so every day is like a holiday for me. I usually work on whatever project floats my boat that day.

Today, I will spend the morning hunting for stocks to buy. That's proving more difficult than I expected since I'm looking for value at a good price and not finding it.

Once I complete that, I'll be editing a romance novel I wrote 15 years ago. It's really a romantic thriller with snippets of romance mixed into a bunch of thrilling scenes. No body parts in this one, just interesting scenes. It's a lot of fun because the focal characters are so well defined. Today, Gina has walked into the kitchen to see her boyfriend kissing another woman. Yes, Gina is the jealous type and the explanation is an innocent one. Paul gave Brandy a thank you gift and she is giving him a thank you kiss on the cheek.

With knives around, maybe I was kidding about the body parts.

Have a happy and stress-free holiday. Drive safe. Drive sober.

-- Thomas Bulkowski

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Tuesday 11/20/12. Trading Tuesday: Dow

The index climbed by 1.6% or 207.65 points. Since 10/01/1928 the index made 143 similar moves on a percentage basis. After those moves, the next day's...
     Average gain was 0.6% on 70 occasions.
     Average loss was -0.5% on 73 occasions.
Expect the index to close lower 51.0% of the time.
Weekly, since inception on 6/14/2011:
     The prediction of the index closing higher has been right 33/55 or 60.0% of the time.
     The prediction of the index closing lower has been right 10/16 or 62.5% of the time.

Picture of the Dow industrials on the 5 minute scale.

Since I post this entry the night before, be sure to check how the futures are trading before the market opens. Large plus or minus numbers in the futures often sets the opening direction up or down, respectively.

I show a picture of the Dow industrials on the 5-minute scale from Monday's trading.

An ascending triangle appears early in the session, but well after the opening minutes when the big move occurred. This one broke out downward but the decline was short lived. After that, it busted and moved higher, but not much. The preferred direction for most of the session was sideways.

The probabilities say to look for a lower close tomorrow, and that's my guess, too. If the index continues to move higher, it should run into resistance around 13,100, which is probably several days move from now, especially since this is a short week (holiday). If the move is down, then expect a small give-back. The retrace often doesn't amount to much, say 50 points as a guess but I could be wrong in all of this.

The following table shows where Fibonacci retrace values of the day's high-low range are plus pivot points, calculated on the Dow industrials, sorted by value. When several are near each other (small differences), the area might act as support or resistance.

-- Thomas Bulkowski

Top

© 2012 ThePatternSite.com    Metric  Value  Diff  Close (within 10% of the high-low range for the day)? 
 Monthly S2  11,834.82    
 Weekly S2  12,295.14  460.32   
 Monthly S1  12,315.39  20.25   Yes! The Monthly S1 is close to the Weekly S2.
 Daily S2  12,521.50  206.11   
 Weekly S1  12,545.55  24.05   
 Low  12,590.23  44.68   
 Open  12,590.23  0.00   Yes! The Open is close to the Low.
 Daily S1  12,658.73  68.50   
 61.8% Down from Intraday High  12,668.91  10.18   Yes! The 61.8% Down from Intraday High is close to the Daily S1.
 50% Down from Intraday High  12,693.21  24.30   
 38.2% Down from Intraday High  12,717.51  24.30   
 Weekly Pivot  12,721.90  4.39   Yes! The Weekly Pivot is close to the 38.2% Down from Intraday High.
 Daily Pivot  12,727.46  5.56   Yes! The Daily Pivot is close to the Weekly Pivot.
 Close  12,795.96  68.50   
 High  12,796.19  0.23   Yes! The High is close to the Close.
 Daily R1  12,864.69  68.50   
 Daily R2  12,933.42  68.73   
 Monthly Pivot  12,952.06  18.64   Yes! The Monthly Pivot is close to the Daily R2.
 Weekly R1  12,972.31  20.25   Yes! The Weekly R1 is close to the Monthly Pivot.
 Weekly R2  13,148.66  176.35   
 Monthly R1  13,432.63  283.97   
 Monthly R2  14,069.30  636.67   

Monday 11/19/12. Market Monday: The Week Ahead

My Prediction

Picture of the Dow utilities on the daily scale.

I show a picture of the Dow utilities on the daily scale. A head-and-shoulders top appears in red with LS being the left shoulder and RS being the right. A smaller head-and-shoulders top also appears in blue.

The reason I show this chart is not because of the two reversal patterns, but the large and swift drop in the index. What this means is that some utilities are moving into the buy zone where you can pick up a stock with a dividend in excess of 5%.

I have picked up a few (or added to existing positions) in the last several days. The dividend rate above 5% is a minimum for me, but you may want to allow a lower value.

Be sure to check the payout ratio. That is the ratio of the dividend to earnings. Usually, it should be about 70%. If it gets over 100%, that means they are paying out more in dividends than they are earning. That is fine so long as it's temporary. Carried on too long and the company will be forced to take action, often by cutting the dividend rate.

Also check on the source of their electricity generation. If it's from nuclear, then that's more expensive than natural gas. They may have difficulty selling their electricity because it's too highly priced. Exelon (EXC) has this problem and the stock is taking a pounding. I consider it a stock to avoid regardless of how tasty the dividend is.

Finally, cleanup from Sandy will likely be passed on to customers and not shareholders. That also includes any upgrades mandated by the EPA for pollution control work. Hawaiian Electric (HE), a stock I own and may buy more of, has this problem with three of their boilers.

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A Brief Look Back

Picture of a flower from my garden.

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

Monday: Down 0.31 points.
Tuesday: Down 58.9 points.
Wednesday: Down 185.23 points.
Thursday: Down 28.57 points.
Friday: Up 45.93 points.

For the Week...

The Dow industrials were down 227.08 points or 1.8%.
The Nasdaq composite was down 51.74 points or 1.8%.
The S&P 500 index was down 19.97 points or 1.4%.

Year to Date...

Dow Industrials
     7.9% down from the high of 13,661.87 on 10/05/2012.
     4.6% up from the low of 12,035.09 on 06/04/2012.
Nasdaq
     10.8% down from the high of 3,196.93 on 09/21/2012.
     8.6% up from the low of 2,627.23 on 01/04/2012.
S&P 500
     7.8% down from the high of 1,474.51 on 09/14/2012.
     8.0% up from the low of 1,258.86 on 01/03/2012.

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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
Existing home sales10:00 MCCounts sales of used homes.
Housing starts8:30 TB-Number of homes beginning construction.
Building permits8:30 TB-Measures building permits for new construction.
Initial jobless claims8:30 WC+Counts people filing for state unemployment benefits.
Michigan sentiment9:55 WB-Consumer sentiment: Measures strength of consumer spending.
Leading indicators10:00 WD-Summary of already known reports.
Crude inventories10:30 W?My guess: Measures oil inventory.

Options Expiration

VIX expires on Wednesday. Thursday is a holiday.

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Swing and Position Traders: Chart Pattern Indicator

As of 11/16/2012, the CPI had:

9 bearish patterns,
3 bullish patterns,
233 patterns waiting for breakout.
The CPI signal is 25.0%, 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.

Swing Traders: Pivot Points

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

IndexS2S1PivotR1R2
Dow Industrials (^DJI): Daily  12,422  12,505  12,555  12,638  12,687 
Weekly  12,226  12,407  12,653  12,834  13,079 
Monthly  11,766  12,177  12,883  13,294  14,000 
S&P 500 (^GSPC): Daily  1,336  1,348  1,355  1,367  1,374 
Weekly  1,319  1,339  1,364  1,385  1,409 
Monthly  1,268  1,314  1,389  1,435  1,510 
Nasdaq (^IXIC): Daily  2,792  2,823  2,841  2,872  2,890 
Weekly  2,752  2,803  2,861  2,912  2,971 
Monthly  2,624  2,738  2,925  3,040  3,227 
  • Seekinger doesn't look at the range of S2 to R2 as support and resistance levels. Rather, he considers them oversold (S) and overbought (R) areas.
  • S2 to R2 range of values across daily, weekly, and monthly periods: If two values are close together then they lend more significance to the area.
  • If the market trends on day 1, the odds rise tremendously that the market will be range bound between daily S1 and daily R1 the next day.
  • In a quiet market when traders are waiting for an important earnings announcement or economic report, look for daily R1 and S1 levels to hold and for the market to return to the daily pivot.
  • A move outside of daily R1 or S1 usually does not mean a breakout.
  • The odds suggest that the entire week's price action will remain between weekly R2 and S2.
  • Avoid going long when the market moves above weekly R2 (it's overbought) and avoid going short when price moves below weekly S2 (oversold).
  • Consider going short at weekly R1 or long at weekly S1 with a profit objective of the weekly pivot.
  • Consider going long at weekly S2 or short at weekly R2 with a profit objective of weekly S1 or R1, respectively.

Here are the formulas:

Pivot point: P = (H + L + C)/3
First resistance level: R1 = (2 * P) - L
First support level: S1 = (2 * P) - H)
Second resistance level: R2 = P + (R1 - S1)
Second support level: S2 = P - (R1 - S1)
H = high price , L=low price, C=closing price

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Consecutive Price Trends

Index Consecutive
Closes So Far 
% Comments 
 Dow industrials (^DJI) 4 weeks down 4.0%  Expect a reversal soon.
 2 months down 11.9%  Expect a reversal soon.
 S & P 500 (^GSPC) 2 weeks down 19.4%  Expect a reversal soon.
 2 months down 12.2%  Expect a reversal soon.
 Nasdaq composite (^IXIC) 6 weeks down 0.0%  Expect a reversal soon.
 2 months down 16.7%  Expect a reversal soon.

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

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

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

Buy-and-Hold: 12-Month SMA

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

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Earnings, Chart Patterns & Industries

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

Mutual funds will begin dividend distributions and rebalancing their portfolios for the approaching year end (starts in late November).

 Found Chart Pattern Name
35Head-and-shoulders top
13Rectangle top
12Pipe top
10Triple top
9Dead-cat bounce
8Channel
8Target price
7Broadening top
7Double Top, Adam and Adam
6Head-and-shoulders bottom

Large numbers of bullish or bearish chart patterns can signal short- to intermediate-term market trends (many bullish chart patterns can mean an uptrend will continue, for example). However, please realize that the short-term price trend could have changed since the pattern was discovered (this is especially true of pipe tops or bottoms, which are weekly patterns).

The 10 types of most frequently appearing chart patterns in the stocks, indexes, and long-only exchange traded funds I follow during the last month are shown in the adjacent table.

 

 

 

 

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

This WeekLast Week
1. Homebuilding1. Homebuilding
2. Cement and Aggregates2. Cement and Aggregates
3. Chemical (Specialty)3. Chemical (Specialty)
4. Chemical (Basic)4. Retail Building Supply
5. Building Materials5. Building Materials
48. Semiconductor Cap Equip.48. Electric Utility (East)
49. Short ETFs49. Semiconductor Cap Equip.
50. Shoe50. Semiconductor
51. Semiconductor51. Shoe

-- Thomas Bulkowski

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Thursday 11/15/12. Trading Thursday: Nasdaq

The index dropped by -1.3% or -37.08 points. Since 02/05/1971 the index made 97 similar moves on a percentage basis. After those moves, the next day's...
     Average gain was 1.6% on 36 occasions.
     Average loss was -0.9% on 61 occasions.
Expect the index to close lower 62.9% of the time.
Weekly, since inception on 6/14/2011:
     The prediction of the index closing higher has been right 27/46 or 58.7% of the time.
     The prediction of the index closing lower has been right 15/29 or 51.7% of the time.

Picture of the Nasdaq composite on the 5 minute scale.

Since I post this entry the night before, be sure to check how the futures are trading before the market opens. Large plus or minus numbers in the futures often sets the opening direction up or down, respectively.

I show a picture of the Nasdaq composite on the 5-minute scale from Wednesday's trading.

A descending triangle appears during the session. It has a downward breakout just after 2:00. That set the stage for a decline that mimicked the extent of the drop beginning the session.

One of these times, I'm going to say that the index will close higher tomorrow and I'll be right. I feel that way as I write this. However, the above probabilities show that the index closes lower 63% of the time under conditions similar to Wednesday's drop. I'm not going to buck those odds. Look for a lower close.

$ $ $

I want to say my piece about taxes. In the early 1980s, I worked near Boston and earned a dollar. I paid income taxes on that dollar to both the state and federal government. I invested that dollar in a stock that paid dividends. I then had to pay taxes on those dividend payments. I took what remained and invested it in a stock that increased in price. That resulted in a capital gain for which I paid tax again. If my estate is large enough at my death, that dollar I earned in the early '80s will be taxed again by what's called the death tax (estate tax).

If you add them up, the same dollar was taxed FIVE times. Haven't we investors and traders been taxed enough already?

How about this: remove the taxes on interest, dividends, and capital gains. We've already paid taxes on that money at least once. Try cutting spending on social programs that benefit few people. Try cutting pork barrel spending, such as asking for funds to build bridges to nowhere. Quit taxing me. Quit spending my money.

The following table shows where Fibonacci retrace values of the day's high-low range are plus pivot points, calculated on the Nasdaq composite, sorted by value. When several are near each other (small differences), the area might act as support or resistance.

-- Thomas Bulkowski

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© 2012 ThePatternSite.com    Metric  Value  Diff  Close (within 10% of the high-low range for the day)? 
 Monthly S2  2,687.71    
 Monthly S1  2,767.26  79.55   
 Weekly S2  2,785.72  18.46   
 Daily S2  2,806.02  20.29   
 Weekly S1  2,816.27  10.25   
 Daily S1  2,826.41  10.15   
 Low  2,842.86  16.45   
 Close  2,846.81  3.95   Yes! The Close is close to the Low.
 Daily Pivot  2,863.26  16.45   
 61.8% Down from Intraday High  2,864.73  1.47   Yes! The 61.8% Down from Intraday High is close to the Daily Pivot.
 50% Down from Intraday High  2,871.48  6.75   
 38.2% Down from Intraday High  2,878.23  6.75   
 Daily R1  2,883.65  5.42   Yes! The Daily R1 is close to the 38.2% Down from Intraday High.
 Open  2,896.81  13.16   
 High  2,900.10  3.29   Yes! The High is close to the Open.
 Weekly Pivot  2,920.35  20.25   
 Daily R2  2,920.50  0.14   Yes! The Daily R2 is close to the Weekly Pivot.
 Weekly R1  2,950.90  30.40   
 Monthly Pivot  2,969.36  18.46   
 Monthly R1  3,048.91  79.55   
 Weekly R2  3,054.98  6.07   
 Monthly R2  3,251.01  196.03   

Tuesday 11/13/12. Trading Tuesday: Dow

The index dropped by 0.0% or -0.31 points. Since 10/01/1928 the index made 1171 similar moves on a percentage basis. After those moves, the next day's...
     Average gain was 0.6% on 618 occasions.
     Average loss was -0.7% on 553 occasions.
Expect the index to close higher 52.8% of the time.
Weekly, since inception on 6/14/2011:
     The prediction of the index closing higher has been right 33/54 or 61.1% of the time.
     The prediction of the index closing lower has been right 10/16 or 62.5% of the time.

Picture of the Dow industrials on the 5 minute scale.

Since I post this entry the night before, be sure to check how the futures are trading before the market opens. Large plus or minus numbers in the futures often sets the opening direction up or down, respectively.

I show a picture of the Dow industrials on the 5-minute scale from Monday's trading.

A double bottom at A and B appears. It sets the stage for a good advance once the index closes above the red line. That line, set by the high between the two bottoms, is called the confirmation line. It changes squiggles on a chart into a valid chart pattern. The sell signal would be the close below the trendline at C. In this example, that method would work well.

Looking forward, the probabilities say the index will close higher tomorrow. I hope that's true since I've been waiting for that to happen for days now. I feel the trend is going to change, so I expect a higher close.

$ $ $

I guess I have my underwear on too tight. Here's the situation. Over the last two years, a mole has sprouted on the right side of my nose. It's annoying. It's a turnoff for the ladies. I want it removed because of that and because it could be cancerous.

My family doctor will remove it but his cryogenic machine broke. He referred me to a dermatologist. That means my cost increases since he's a specialist. Here's the kicker. I can't have it removed without a consultation first. So, I have to pay for TWO office visits before he freezes it off. What's wrong with this picture? No wonder health insurance is so high.

I can understand the specialists concern, but I already know what I want done. Why waste two visits when all I'm asking is to have it removed and biopsied? Sigh.

I'm going to go back to my family doctor and ask that he fire up the chainsaw and hack it off ASAP.

The following table shows where Fibonacci retrace values of the day's high-low range are plus pivot points, calculated on the Dow industrials, sorted by value. When several are near each other (small differences), the area might act as support or resistance.

-- Thomas Bulkowski

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© 2012 ThePatternSite.com    Metric  Value  Diff  Close (within 10% of the high-low range for the day)? 
 Monthly S2  12,154.97    
 Weekly S2  12,402.38  247.41   
 Monthly S1  12,485.02  82.64   
 Weekly S1  12,608.73  123.71   
 Daily S2  12,741.51  132.78   
 Daily S1  12,778.29  36.79   
 Low  12,783.00  4.71   Yes! The Low is close to the Daily S1.
 61.8% Down from Intraday High  12,812.90  29.90   
 Close  12,815.08  2.18   Yes! The Close is close to the 61.8% Down from Intraday High.
 Open  12,815.93  0.85   Yes! The Open is close to the Close.
 Daily Pivot  12,819.79  3.86   Yes! The Daily Pivot is close to the Open.
 50% Down from Intraday High  12,822.14  2.35   Yes! The 50% Down from Intraday High is close to the Daily Pivot.
 38.2% Down from Intraday High  12,831.38  9.24   
 Daily R1  12,856.57  25.20   
 High  12,861.28  4.71   Yes! The High is close to the Daily R1.
 Daily R2  12,898.07  36.79   
 Weekly Pivot  12,949.74  51.67   
 Monthly Pivot  13,073.45  123.71   
 Weekly R1  13,156.09  82.64   
 Monthly R1  13,403.50  247.41   
 Weekly R2  13,497.10  93.60   
 Monthly R2  13,991.93  494.83   

Monday 11/12/12. Market Monday: The Week Ahead

My Prediction

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

I show a picture of the S & P 500 index on the daily scale.

I drew two red lines, parallel to one another, connecting peaks and valleys. This forms a channel. The breakout from this channel was downward.

A few days after the breakout, the index pulled back to the bottom of the channel and walked through the door inside, peaking at A.

After that, the downward move continued.

The reason I mentioned this is that the height of the channel projected downward meets the low posted Friday. Does this mean the index will find support and turn upward?

No. The measure rule for chart patterns, such as the downward channel projection, is just a guess. Some would say it acts as a minimum move to expect.

Nevertheless, I am still looking for the index to rise. It's buried in a loose support zone in June through August. Once earnings are out of the way and people stop worrying about Europe and sequestration, we'll be fine. Until something else comes along to worry about, that is.

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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 19.28 points.
Tuesday: Up 133.24 points.
Wednesday: Down 312.95 points.
Thursday: Down 121.41 points.
Friday: Up 4.07 points.

For the Week...

The Dow industrials were down 277.77 points or 2.1%.
The Nasdaq composite was down 77.26 points or 2.6%.
The S&P 500 index was down 34.35 points or 2.4%.

Year to Date...

Dow Industrials
     6.2% down from the high of 13,661.87 on 10/05/2012.
     6.5% up from the low of 12,035.09 on 06/04/2012.
Nasdaq
     9.1% down from the high of 3,196.93 on 09/21/2012.
     10.6% up from the low of 2,627.23 on 01/04/2012.
S&P 500
     6.4% down from the high of 1,474.51 on 09/14/2012.
     9.6% up from the low of 1,258.86 on 01/03/2012.

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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
Treasury budget2:00 TDTracks budget deficit. Important in April (tax filing).
Retail sales8:30 WA-Reports total retail sales (not services). Are people spending?
Producer price index8:30 WB-Measures wholesale goods cost. An indication of future inflation.
Business inventories10:00 WC-Reports manufacturing, wholesale, retail inventories.
FOMC Minutes2:00 W?Minutes of the prior Federal Reserve meeting.
Initial jobless claims8:30 ThC+Counts people filing for state unemployment benefits.
Consumer price index8:30 ThB+Inflation report. Measures cost of goods and services.
Crude inventories10:30 Th?My guess: Measures oil inventory.
Industrial production9:15 FB-Production of utilities, mines, and manufacturers.
Capacity utilization9:15 FB-Gauges economic activity, hints of inflation.

Options Expiration

The following is courtesy of the Options Industry Council.

OptionDate
A.M. settled index options cease trading.Thursday
Expiring equity and P.M. settled index options cease trading. Expiring cash-settled currency options cease trading at 12:00 P.M. EST.Friday
Equity, index, and cash-settled currency 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 11/09/2012, the CPI had:

13 bearish patterns,
1 bullish patterns,
259 patterns waiting for breakout.
The CPI signal is 7.1%, which is bearish (<= 35%).

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

Swing Traders: Pivot Points

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

IndexS2S1PivotR1R2
Dow Industrials (^DJI): Daily  12,670  12,742  12,816  12,889  12,963 
Weekly  12,402  12,609  12,950  13,156  13,497 
Monthly  12,155  12,485  13,074  13,404  13,992 
S&P 500 (^GSPC): Daily  1,363  1,371  1,381  1,390  1,400 
Weekly  1,335  1,357  1,395  1,418  1,456 
Monthly  1,310  1,345  1,408  1,443  1,506 
Nasdaq (^IXIC): Daily  2,867  2,886  2,909  2,927  2,950 
Weekly  2,805  2,855  2,940  2,990  3,074 
Monthly  2,707  2,806  2,989  3,088  3,270 
  • Seekinger doesn't look at the range of S2 to R2 as support and resistance levels. Rather, he considers them oversold (S) and overbought (R) areas.
  • S2 to R2 range of values across daily, weekly, and monthly periods: If two values are close together then they lend more significance to the area.
  • If the market trends on day 1, the odds rise tremendously that the market will be range bound between daily S1 and daily R1 the next day.
  • In a quiet market when traders are waiting for an important earnings announcement or economic report, look for daily R1 and S1 levels to hold and for the market to return to the daily pivot.
  • A move outside of daily R1 or S1 usually does not mean a breakout.
  • The odds suggest that the entire week's price action will remain between weekly R2 and S2.
  • Avoid going long when the market moves above weekly R2 (it's overbought) and avoid going short when price moves below weekly S2 (oversold).
  • Consider going short at weekly R1 or long at weekly S1 with a profit objective of the weekly pivot.
  • Consider going long at weekly S2 or short at weekly R2 with a profit objective of weekly S1 or R1, respectively.

Here are the formulas:

Pivot point: P = (H + L + C)/3
First resistance level: R1 = (2 * P) - L
First support level: S1 = (2 * P) - H)
Second resistance level: R2 = P + (R1 - S1)
Second support level: S2 = P - (R1 - S1)
H = high price , L=low price, C=closing price

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Consecutive Price Trends

Index Consecutive
Closes So Far 
% Comments 
 Dow industrials (^DJI) 3 weeks down 14.6%  Expect a reversal soon.
 2 months down 11.9%  Expect a reversal soon.
 S & P 500 (^GSPC) 1 week down 30.7%  The trend may continue.
 2 months down 12.2%  Expect a reversal soon.
 Nasdaq composite (^IXIC) 5 weeks down 3.2%  Expect a reversal soon.
 2 months down 16.7%  Expect a reversal soon.

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

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

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

Buy-and-Hold: 12-Month SMA

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

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Earnings, Chart Patterns & Industries

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

Mutual funds will begin dividend distributions and rebalancing their portfolios for the approaching year end (starts in late November).

 Found Chart Pattern Name
31Head-and-shoulders top
13Rectangle top
10Dead-cat bounce
9Head-and-shoulders bottom
9Broadening top
8Channel
8Pipe bottom
7Target price
6Rectangle bottom
6Triangle, symmetrical

Large numbers of bullish or bearish chart patterns can signal short- to intermediate-term market trends (many bullish chart patterns can mean an uptrend will continue, for example). However, please realize that the short-term price trend could have changed since the pattern was discovered (this is especially true of pipe tops or bottoms, which are weekly patterns).

The 10 types of most frequently appearing chart patterns in the stocks, indexes, and long-only exchange traded funds I follow during the last month are shown in the adjacent table.

 

 

 

 

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

This WeekLast Week
1. Homebuilding1. Homebuilding
2. Cement and Aggregates2. Chemical (Specialty)
3. Chemical (Specialty)3. Cement and Aggregates
4. Retail Building Supply4. Building Materials
5. Building Materials5. Retail Building Supply
48. Electric Utility (East)48. Petroleum (Producing)
49. Semiconductor Cap Equip.49. Semiconductor Cap Equip.
50. Semiconductor50. Shoe
51. Shoe51. Semiconductor

-- Thomas Bulkowski

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Saturday 11/10/12. It's Here! Visual Guide.

It's here! My next book, the Visual Guide to Chart Patterns, that is (pictured on the right). It is now on store shelves. You can purchase a copy by clicking on the picture. It'll take you to Amazon.com where your purchases during the visit help support this website. Makes a great holiday gift (as do my other books, too).

The book is a color paperback packed with useful information that will teach you how to find chart patterns step-by-step. We begin by finding peaks that align and then valleys. We add curves and diagonals then define what is meant by a minor high or minor low. In fact, you can see a detailed table of contents here.

What I enjoy about the book is taking the quizzes. They are tricky, like this one from the first chapter: True or false: A rectangle forms between underlying resistance and overhead support.

That's false, because it should read underlying support and overhead resistance. I wrote the quizzes and they trip me up sometimes.

The printed version has links to where you can find the four videos which accompany the e-book versions. The e-book also has an interactive visual appendix of chart patterns.

If you like the book, please post a review of it at your favorite book e-retailer (Barnes and noble, Amazon.com).

Since the publishing world is moving to e-books, word-of-mouth advertising is very important. Your reviews help spread the word. If you don't know what to write, read some of the lower star reviews and rebut what they say. If you have ever thought about supporting thepatternsite.com, buying a book or posting a review is one way. The publishing company wants high sales and if my books don't sell, then they won't pay me to write any more. So, buy a copy for yourself, your friends, your relatives. Think Christmas and birthdays....

Thanks! -- Thomas Bulkowski


Thursday 11/8/12. Trading Thursday: Nasdaq

The index dropped by -2.5% or -74.64 points. Since 02/05/1971 the index made 38 similar moves on a percentage basis. After those moves, the next day's...
     Average gain was 1.3% on 21 occasions.
     Average loss was -3.3% on 17 occasions.
Expect the index to close higher 55.3% of the time.
Weekly, since inception on 6/14/2011:
     The prediction of the index closing higher has been right 27/45 or 60.0% of the time.
     The prediction of the index closing lower has been right 15/29 or 51.7% of the time.

Picture of the Nasdaq composite on the 5 minute scale.

Since I post this entry the night before, be sure to check how the futures are trading before the market opens. Large plus or minus numbers in the futures often sets the opening direction up or down, respectively.

I show a picture of the Nasdaq composite on the 5-minute scale from Wednesday's trading.

The chart shows a head-and-shoulders bottom with LS being the left shoulder, and RS being the right. The pattern confirms as a valid one when the index closed above the red neckline. In this case, the index moved horizontally instead of making a straight-line advance.

The horizontal movement gives me pause when suggesting that the index tomorrow (Thursday) will close higher. Nevertheless, I expect a bounce tomorrow. I think the fears of Europe, the US, and anything else that might be on investors minds, is overblown.

$ $ $

I don't insert myself into politics because it's a dangerous game of upsetting someone when a comment is made. However, as a citizen of the US, I ask that my representatives in congress take the unusual step and put the country first. Forget party politics. Forget special interests. Put the country first. Stop spending my money.

The following table shows where Fibonacci retrace values of the day's high-low range are plus pivot points, calculated on the Nasdaq composite, sorted by value. When several are near each other (small differences), the area might act as support or resistance.

-- Thomas Bulkowski

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© 2012 ThePatternSite.com    Metric  Value  Diff  Close (within 10% of the high-low range for the day)? 
 Monthly S2  2,813.00    
 Monthly S1  2,875.15  62.14   
 Daily S2  2,896.28  21.13   
 Weekly S2  2,909.78  13.51   
 Daily S1  2,916.78  7.00   
 Weekly S1  2,923.54  6.75   
 Low  2,926.79  3.25   Yes! The Low is close to the Weekly S1.
 Close  2,937.29  10.50   
 61.8% Down from Intraday High  2,946.28  8.99   
 Daily Pivot  2,947.30  1.02   Yes! The Daily Pivot is close to the 61.8% Down from Intraday High.
 50% Down from Intraday High  2,952.30  5.00   Yes! The 50% Down from Intraday High is close to the Daily Pivot.
 38.2% Down from Intraday High  2,958.32  6.02   
 Daily R1  2,967.80  9.48   
 Open  2,976.46  8.66   
 High  2,977.81  1.35   Yes! The High is close to the Open.
 Weekly Pivot  2,978.69  0.88   Yes! The Weekly Pivot is close to the High.
 Weekly R1  2,992.45  13.75   
 Daily R2  2,998.32  5.87   
 Monthly Pivot  3,023.30  24.99   
 Weekly R2  3,047.60  24.30   
 Monthly R1  3,085.45  37.84   
 Monthly R2  3,233.60  148.16   

Tuesday 11/6/12. Trading Tuesday: Dow

The index climbed by 0.1% or 19.28 points. Since 10/01/1928 the index made 1214 similar moves on a percentage basis. After those moves, the next day's...
     Average gain was 0.6% on 620 occasions.
     Average loss was -0.7% on 594 occasions.
Expect the index to close higher 51.1% of the time.
Weekly, since inception on 6/14/2011:
     The prediction of the index closing higher has been right 32/53 or 60.4% of the time.
     The prediction of the index closing lower has been right 10/16 or 62.5% of the time.

Picture of the Dow industrials on the 5 minute scale.

Since I post this entry the night before, be sure to check how the futures are trading before the market opens. Large plus or minus numbers in the futures often sets the opening direction up or down, respectively.

I show a picture of the Dow industrials on the 5-minute scale from Monday's trading.

The only pattern I see is a head-and-shoulders bottom. The pattern confirmed when the index closed above the right shoulder high (A). I use that instead of the red neckline when the neckline slopes upward. Steep sloping necklines could mean the buy signal never triggers.

The left (LS) and right (RS) shoulders are not outstanding minor lows, so this pattern was difficult to spot. Nevertheless, the move after confirmation was a profitable one.

On the daily scale, the index is resting on support -- still. If you count the waves down from the peak in September, you get five, not including the small one-day spikes of the last few days. That could suggest an ABC correction that will take the index higher. Or it could mean that another 2-wave extension will take the index lower. I'm not a fan of Elliott wave...

One thing is for sure. When this election is over, ABC will stop using that stupid and worn-out phrase, "Your Voice. Your Vote." Give it a permanent rest.

$ $ $

The ant killer that smelled like rotten eggs did not keep the cat away from using my garden as a litter box. I covered the area with small branches and twigs. I'm hoping the sticks will act as a repellant.

I once used mouse traps to scare them away. I connected a fishing line across the path into my yard and attached it to the trap. The cat would pull the line and the trap would sound. The cats just looked back, startled, and kept on coming. Sigh. I wasn't trying to trap the cat, by the way, just scare it with noise.

The following table shows where Fibonacci retrace values of the day's high-low range are plus pivot points, calculated on the Dow industrials, sorted by value. When several are near each other (small differences), the area might act as support or resistance.

-- Thomas Bulkowski

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© 2012 ThePatternSite.com    Metric  Value  Diff  Close (within 10% of the high-low range for the day)? 
 Monthly S2  12,649.38    
 Monthly S1  12,880.91  231.53   
 Weekly S2  12,913.94  33.03   
 Daily S2  12,995.37  81.43   
 Weekly S1  13,013.19  17.82   
 Low  13,038.71  25.52   
 Daily S1  13,053.91  15.20   
 61.8% Down from Intraday High  13,077.62  23.72   
 50% Down from Intraday High  13,089.64  12.02   
 Open  13,092.28  2.64   Yes! The Open is close to the 50% Down from Intraday High.
 Daily Pivot  13,097.24  4.96   Yes! The Daily Pivot is close to the Open.
 38.2% Down from Intraday High  13,101.67  4.42   Yes! The 38.2% Down from Intraday High is close to the Daily Pivot.
 Close  13,112.44  10.77   
 High  13,140.58  28.14   
 Weekly Pivot  13,151.32  10.74   
 Daily R1  13,155.78  4.46   Yes! The Daily R1 is close to the Weekly Pivot.
 Daily R2  13,199.11  43.34   
 Weekly R1  13,250.57  51.46   
 Monthly Pivot  13,271.39  20.82   
 Weekly R2  13,388.70  117.31   
 Monthly R1  13,502.92  114.22   
 Monthly R2  13,893.40  390.48   

Monday 11/5/12. Market Monday: The Week Ahead

My Prediction

Picture of the Dow transports on the weekly scale.

I show a picture of the Dow transports on the weekly scale because the daily one doesn't show anything useful.

On the chart, notice the large symmetrical triangle highlighted in red. The index has not pushed its way out of the borders yet, and it's possible the index will just squeeze out the end. The breakout from the triangle will likely determine the direction over the intermediate term.

If you view this as the corrective phase of a measured move up, then the breakout will be upward and the move will carry it far enough to replicate the move of the first leg. The first leg spans from about 4000 to 5400 (1,400 points), so projecting from the breakout price of about 5200 gives a target of 6,600 in about 6 months after the breakout. That seems too far too fast to be realistic.

All of that is a guess, but looking ahead can help sometimes.

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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.

Wednesday: Down 10.75 points.
Thursday: Up 136.16 points.
Friday: Down 139.46 points.
Saturday: Holiday or other weird event!
Saturday: Holiday or other weird event!

For the Week...

The Dow industrials were down 14.05 points or 0.1%.
The Nasdaq composite was down 5.82 points or 0.2%.
The S&P 500 index was up 2.26 points or 0.2%.

Year to Date...

Dow Industrials
     4.2% down from the high of 13,661.87 on 10/05/2012.
     8.8% up from the low of 12,035.09 on 06/04/2012.
Nasdaq
     6.7% down from the high of 3,196.93 on 09/21/2012.
     13.5% up from the low of 2,627.23 on 01/04/2012.
S&P 500
     4.1% down from the high of 1,474.51 on 09/14/2012.
     12.3% up from the low of 1,258.86 on 01/03/2012.

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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
Crude inventories10:30 W?My guess: Measures oil inventory.
Consumer credit3:00 WD-Measures auto, credit card and other debt.
Initial jobless claims8:30 ThC+Counts people filing for state unemployment benefits.
Trade balance8:30 ThC+Signals balance of exports & imports.
International trade8:30 FC+Import/export prices, trade balance. US economy vs others.
Wholesale inventories10:00 FD-Wholesale sales and inventory statistics.

Options Expiration

No options expire this week.

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Swing and Position Traders: Chart Pattern Indicator

As of 11/02/2012, the CPI had:

14 bearish patterns,
4 bullish patterns,
210 patterns waiting for breakout.
The CPI signal is 22.2%, which is bearish (<= 35%).

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

Swing Traders: Pivot Points

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

IndexS2S1PivotR1R2
Dow Industrials (^DJI): Daily  12,940  13,017  13,153  13,230  13,366 
Weekly  12,908  13,000  13,145  13,238  13,382 
Monthly  12,643  12,868  13,265  13,490  13,887 
S&P 500 (^GSPC): Daily  1,399  1,407  1,420  1,428  1,442 
Weekly  1,390  1,402  1,418  1,430  1,446 
Monthly  1,362  1,388  1,429  1,456  1,497 
Nasdaq (^IXIC): Daily  2,947  2,965  2,999  3,017  3,051 
Weekly  2,925  2,953  2,994  3,022  3,063 
Monthly  2,828  2,905  3,038  3,115  3,249 
  • Seekinger doesn't look at the range of S2 to R2 as support and resistance levels. Rather, he considers them oversold (S) and overbought (R) areas.
  • S2 to R2 range of values across daily, weekly, and monthly periods: If two values are close together then they lend more significance to the area.
  • If the market trends on day 1, the odds rise tremendously that the market will be range bound between daily S1 and daily R1 the next day.
  • In a quiet market when traders are waiting for an important earnings announcement or economic report, look for daily R1 and S1 levels to hold and for the market to return to the daily pivot.
  • A move outside of daily R1 or S1 usually does not mean a breakout.
  • The odds suggest that the entire week's price action will remain between weekly R2 and S2.
  • Avoid going long when the market moves above weekly R2 (it's overbought) and avoid going short when price moves below weekly S2 (oversold).
  • Consider going short at weekly R1 or long at weekly S1 with a profit objective of the weekly pivot.
  • Consider going long at weekly S2 or short at weekly R2 with a profit objective of weekly S1 or R1, respectively.

Here are the formulas:

Pivot point: P = (H + L + C)/3
First resistance level: R1 = (2 * P) - L
First support level: S1 = (2 * P) - H)
Second resistance level: R2 = P + (R1 - S1)
Second support level: S2 = P - (R1 - S1)
H = high price , L=low price, C=closing price

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Consecutive Price Trends

Index Consecutive
Closes So Far 
% Comments 
 Dow industrials (^DJI) 2 weeks down 18.4%  Expect a reversal soon.
 2 months down 11.9%  Expect a reversal soon.
 S & P 500 (^GSPC) 1 week up 42.2%  Expect a random direction.
 1 month up 53.7%  Expect a random direction.
 Nasdaq composite (^IXIC) 4 weeks down 7.6%  Expect a reversal soon.
 1 month up 47.9%  Expect a random direction.

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

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

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

Buy-and-Hold: 12-Month SMA

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

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Earnings, Chart Patterns & Industries

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

Mutual funds will begin dividend distributions and rebalancing their portfolios for the approaching year end (starts in late November).

 Found Chart Pattern Name
27Head-and-shoulders top
11Triangle, symmetrical
11Rectangle top
10Dead-cat bounce
9Head-and-shoulders bottom
7Triangle, ascending
6Double Top, Adam and Adam
6Falling wedge
6Rectangle bottom
6Triple top

Large numbers of bullish or bearish chart patterns can signal short- to intermediate-term market trends (many bullish chart patterns can mean an uptrend will continue, for example). However, please realize that the short-term price trend could have changed since the pattern was discovered (this is especially true of pipe tops or bottoms, which are weekly patterns).

The 10 types of most frequently appearing chart patterns in the stocks, indexes, and long-only exchange traded funds I follow during the last month are shown in the adjacent table.

 

 

 

 

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

This WeekLast Week
1. Homebuilding1. Homebuilding
2. Chemical (Specialty)2. Chemical (Specialty)
3. Cement and Aggregates3. Cement and Aggregates
4. Building Materials4. Insurance (Prop/Casualty)
5. Retail Building Supply5. Biotechnology
48. Petroleum (Producing)48. Petroleum (Producing)
49. Semiconductor Cap Equip.49. Semiconductor Cap Equip.
50. Shoe50. Semiconductor
51. Semiconductor51. Shoe

-- Thomas Bulkowski

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Saturday 11/3/12. Helicopter Ferry.

Picture of a helicopter.

The helicopter sounded like there was a bad car accident and I didn't pay much attention to it. When it sounded like it was lifting off, I looked out the window and couldn't see anything. Then it sounded like it was lifting off again, so I looked again.

Eventually, I figured out what it was. When they built the nearby Home Depot store, they used a jolly green giant helicopter (vintage 1960s and Vietnam war) to move air conditioning units from an 18-wheeler truck onto the top of the store. It was faster and probably cheaper than a crane.

This morning, the same procedure was being done about 1/2 mile from my house. It's a noisy process, but it's interesting to watch. It took about 2 hours for him to finish moving all that he wanted to move. I show the military version of the chopper.

-- Thomas Bulkowski

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Thursday 11/1/12. Trading Thursday: Nasdaq

The index dropped by -0.4% or -10.72 points. Since 02/05/1971 the index made 374 similar moves on a percentage basis. After those moves, the next day's...
     Average gain was 0.8% on 182 occasions.
     Average loss was -1.1% on 192 occasions.
Expect the index to close lower 51.3% of the time.
Weekly, since inception on 6/14/2011:
     The prediction of the index closing higher has been right 27/45 or 60.0% of the time.
     The prediction of the index closing lower has been right 15/28 or 53.6% of the time.

Picture of the Nasdaq composite on the 5 minute scale.

Since I post this entry the night before, be sure to check how the futures are trading before the market opens. Large plus or minus numbers in the futures often sets the opening direction up or down, respectively.

I show a picture of the Nasdaq composite on the 5-minute scale from Wednesday's trading.

A double bottom appears at AB. It confirmed as a valid pattern when the index closed above the horizontal red line.

After that, the index moved horizontally. Does this mean there is potential for more upside tomorrow? Not if you believe the above probabilities. It suggests a lower close.

The daily chart looks as if the index is headed lower but I'd like to see a higher close. I have no idea whether that will happen or not. You're on your own.

The following table shows where Fibonacci retrace values of the day's high-low range are plus pivot points, calculated on the Nasdaq composite, sorted by value. When several are near each other (small differences), the area might act as support or resistance.

-- Thomas Bulkowski

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© 2012 ThePatternSite.com    Metric  Value  Diff  Close (within 10% of the high-low range for the day)? 
 Monthly S2  2,823.09    
 Monthly S1  2,900.16  77.07   
 Weekly S2  2,926.88  26.72   
 Weekly S1  2,952.06  25.17   
 Daily S2  2,952.53  0.47   Yes! The Daily S2 is close to the Weekly S1.
 Daily S1  2,964.88  12.35   
 Low  2,964.94  0.06   Yes! The Low is close to the Daily S1.
 61.8% Down from Intraday High  2,974.40  9.46   
 Close  2,977.23  2.83   
 Daily Pivot  2,977.29  0.06   Yes! The Daily Pivot is close to the Close.
 50% Down from Intraday High  2,977.32  0.03   Yes! The 50% Down from Intraday High is close to the Daily Pivot.
 38.2% Down from Intraday High  2,980.24  2.92   
 Weekly Pivot  2,986.33  6.09   
 Open  2,986.85  0.52   Yes! The Open is close to the Weekly Pivot.
 Daily R1  2,989.64  2.79   
 High  2,989.70  0.06   Yes! The High is close to the Daily R1.
 Daily R2  3,002.05  12.35   
 Weekly R1  3,011.51  9.46   
 Monthly Pivot  3,038.23  26.72   
 Weekly R2  3,045.78  7.55   
 Monthly R1  3,115.30  69.52   
 Monthly R2  3,253.37  138.07   

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