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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 04/17/2014
16,409 -16.31 -0.1%
7,634 42.88 0.6%
543 -5.75 -1.0%
4,096 9.29 0.2%
1,865 2.54 0.1%
YTD
-1.0%
3.2%
10.7%
-1.9%
0.9%
Tom's Targets    Overview: 04/11/2014
16,600 or 15,900 by 05/01/2014
7,700 or 7,150 by 05/01/2014
560 or 530 by 05/01/2014
4,250 or 3,900 by 05/01/2014
1,900 or 1,800 by 05/01/2014
Mutt Winners: None YTD

Written and copyright © 2014 by Thomas N. Bulkowski. All rights reserved.

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Monday 4/21/14. Market Monday: The Week Ahead

My Prediction

Picture of the Dow utilities on the daily scale.

This is a picture of the Dow utilities index.

I remarked in an earlier blog that since the utilities under performed last year, that they might outperform this year. The chart seems to agree.

Notice how price has been climbing at a good angle. Too steep and the run higher won't last. Too shallow and little progress is made.

Strong and lasting moves tend to be those from the shallower angles but it's hard to measure that. I attempted to do that in my second book, Trading Classic Chart Patterns" in my study of trendlines.

 

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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 166.84 points.
Tuesday: Up 10.27 points.
Wednesday: Up 181.04 points.
Thursday: Down 266.96 points.
Friday: Down 143.47 points.

For the Week...

The Dow industrials were down 4.17 points or 0.0%.
The Nasdaq composite was down 32.21 points or 0.8%.
The S&P 500 index was down 0.24 points or 0.0%.

Year to Date...

Dow Industrials
     1.3% down from the high of 16,631.63 on 04/04/2014.
     7.0% up from the low of 15,340.69 on 02/05/2014.
Nasdaq
     6.3% down from the high of 4,371.71 on 03/06/2014.
     3.8% up from the low of 3,946.03 on 04/15/2014.
S&P 500
     1.7% down from the high of 1,897.28 on 04/04/2014.
     7.3% up from the low of 1,737.92 on 02/05/2014.

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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
Leading indicators10:00 MD-Summary of already known reports.
Existing home sales10:00 TCCounts sales of used homes.
New home sales10:00 WC+Shows sales of single-family homes.
Crude inventories10:30 W?My guess: Measures oil inventory.
Initial jobless claims8:30 ThC+Counts people filing for state unemployment benefits.
Durable goods orders8:30 ThBMeasures orders, shipments of goods with lifespans >3 years.
Michigan sentiment9:55 FB-Consumer sentiment: Measures strength of consumer spending.

Options Expiration

No options expire this week.

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Swing and Position Traders: Chart Pattern Indicator

As of 04/17/2014, the CPI had:

4 bearish patterns,
28 bullish patterns,
415 patterns waiting for breakout.
The CPI signal is 87.5%, which is bullish (>= 65%).

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

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  16,320  16,364  16,412  16,457  16,505 
Weekly  15,853  16,131  16,293  16,571  16,734 
Monthly  15,736  16,072  16,352  16,688  16,968 
S&P500 (^GSPC): Daily  1,851  1,858  1,864  1,871  1,877 
Weekly  1,792  1,829  1,851  1,887  1,909 
Monthly  1,776  1,820  1,859  1,903  1,942 
Nasdaq (^IXIC): Daily  4,044  4,070  4,090  4,116  4,136 
Weekly  3,897  3,996  4,091  4,190  4,284 
Monthly  3,773  3,934  4,153  4,314  4,533 
  • Seekinger doesn't look at the range of S2 to R2 as support and resistance levels. Rather, he considers them oversold (S) and overbought (R) areas.
  • S2 to R2 range of values across daily, weekly, and monthly periods: If two values are close together then they lend more significance to the area.
  • If the market trends on day 1, the odds rise tremendously that the market will be range bound between daily S1 and daily R1 the next day.
  • In a quiet market when traders are waiting for an important earnings announcement or economic report, look for daily R1 and S1 levels to hold and for the market to return to the daily pivot.
  • A move outside of daily R1 or S1 usually does not mean a breakout.
  • The odds suggest that the entire week's price action will remain between weekly R2 and S2.
  • Avoid going long when the market moves above weekly R2 (it's overbought) and avoid going short when price moves below weekly S2 (oversold).
  • Consider going short at weekly R1 or long at weekly S1 with a profit objective of the weekly pivot.
  • Consider going long at weekly S2 or short at weekly R2 with a profit objective of weekly S1 or R1, respectively.

Here are the formulas:

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

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Consecutive Price Trends

Index Consecutive
Closes So Far 
% Comments 
 Dow industrials (^DJI) 1 week up 43.5%   Expect a random direction. 
 1 month down 19.7%   Expect a reversal soon. 
 S & P 500 (^GSPC) 1 week up 42.8%   Expect a random direction. 
 1 month down 20.7%   Expect a reversal soon. 
 Nasdaq composite (^IXIC) 1 week up 43.3%   Expect a random direction. 
 2 months down 16.1%   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 indices, based on the most recent trend of closes.

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

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

Buy-and-Hold: 12-Month SMA

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

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Earnings, Chart Patterns & Industries

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

 Found Chart Pattern Name
17Triangle, symmetrical
14Head-and-shoulders top
7Triple top
7Scallop, ascending and inverted
7Double Top, Eve and Adam
6Double Top, Adam and Adam
6Double Top, Eve and Eve
6Broadening wedge, descending
6Broadening top
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, indices, and long-only exchange traded funds I follow during the last month are shown in the adjacent table.

 

 

 

 

The industries I follow were the best (rank 1) and worst performing.

This WeekLast Week
1. Cement and Aggregates1. Cement and Aggregates
2. Air Transport2. Air Transport
3. Chemical (Specialty)3. Chemical (Specialty)
4. Aerospace/Defense4. Aerospace/Defense
5. Drug5. Drug
50. Retail Building Supply50. Retail Building Supply
51. E-Commerce51. E-Commerce
52. Toiletries/Cosmetics52. Toiletries/Cosmetics
53. Retail (Special Lines)53. Retail (Special Lines)
54. Short ETFs54. Short ETFs

-- Thomas Bulkowski

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Saturday 4/19/14. The Best Performing Candlesticks

Tip: The best performing candlesticks appear within a third of the yearly low.

I used a database of 4.7 million candle lines and found 103 different candlestick patterns. Then I measured the move from the breakout to the trend end and sorted them into where the breakout was in the yearly price range.

This is one of the discoveries I made and discuss in my book, Encyclopedia of Candlestick Charts (shown). In each candlestick chapter, I sort candle performance into the yearly price range, just to see if a trend develops. Most of the time, candles that showed the highest post breakout move began their life within the lowest third of the yearly price range. Here are the results.

Highest Third:5%
Middle Third: 11%
Lowest Third: 84%

As an example, the bullish belt hold candlestick in a bear market after a downward breakout drops an average of 11.21% for those candlesticks within a third of the yearly low. Belt holds in the middle third drop 9.35% and those with breakouts in the highest third drop 7.76%. The other breakout directions (up/down) and markets (bull/bear) show similar results, but check the candlestick type you are interested in. The decline in this example measures from the breakout to the trend low (often the nearest minor low).

Knowing that candlesticks within a third of the yearly low tend to be more reliable (meaning price trends farther than otherwise, so you are more likely to walk away with a profitable trade) is the kind of information that gives traders like me an edge. And you can buy that edge from Amazon at the link. Just click on the book picture and it will take you there.

-- Thomas Bulkowski


Friday 4/18/14. Markets Closed. Vertical Run Down!

I released research on a new chart patterns called a vertical run down. Click the link to learn more about how price behaves after a strong plunge.

-- Thomas Bulkowski

Written and copyright © 2014 by Thomas N. Bulkowski. All rights reserved.