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Written and copyright © 2008 by Thomas N. Bulkowski. All rights reserved.

Wednesday, 1/7/2009. Dow Weakness But No Worries.

Rob S. found an error in my book Encyclopedia of Chart Patterns. On page 532, third line down from the top. Change "about a week shorter" to "about a week longer". You can find the complete set of book corrections at the bottom of the books page. Thanks for finding and telling me about the error, Rob.

In case you haven’t noticed, I changed from bearish to bullish over the weekend based on several factors. I believe that Obama will do his best to instill confidence in the electorate and the markets, perhaps dribbling out new plans for spending our money. This will help support the Dow and other indexes. Also, I have noticed that the markets have been shrugging off bad news and moving higher in the face of it, or dropping but recovering quickly. I believe that we are moving up out of the congestion region, so I have been buying stocks or adding to existing positions.

Friday is a big day because the employment report comes out. It may be a volatile day, but if the market shrugs off any bad news or drops but recovers on Monday, then that will reinforce my bullish stance.

If you want 10 ways to find the market bottom, then read my page discussing them.

The chart shows a picture of the Dow Jones industrials on the daily scale. I show this to highlight overhead resistance that I see coming. The red trendline connects peaks in October and November and carries downward to A. Already we are seeing price run into some reluctance to move higher.

If you draw the same trendline in the other indexes, you will see that some of them have already pushed through the line. Thus, overhead resistance is probably not strong. I expect price to hesitate here, perhaps retrace a bit, but then continue higher. A close above the trendline would be bullish. I show my guess as to the coming price action in green. If I am right, then there is money to be made by buying on weakness in the coming days.

-- Thomas Bulkowski

Tuesday, 1/6/2009. Tutorial Tuesday: Theft and a Website Tour

I received word today that my book, Encyclopedia of Candlestick Charts will be translated into German (the English version is shown on the right).

I told you a story back in March and it is time to retell it, with an addendum.

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). One 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.

After 13 months of hard work writing the book, I had done something remarkable. I had researched over 15,000 chart patterns manually, 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 daily -- for free. 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 and posted the quizzes on my website instead. After that decision, someone flamed at me for stopping the service, said that I was cheap, and accused me of profiting from it.

I do not charge for anything on my website and never have, nor did I charge for those quizzes. I do have ads and a link to Amazon from which I derive a bit of money (when you click on an ad, I receive a small fee. When you click on a book on this website that takes you to amazon.com and buy something there -- anything -- I receive a small referral fee). Both help pay for the cost of this site, but the choice to click on an ad or spend money at Amazon.com through this website is yours.

After publication of my book, Trading Classic Chart Patterns, pictured on the left, 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 (they ask for my opinion, but it is one vote among many).

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

I have a new book out, Encyclopedia of Candlestick Charts, and it is remarkable. I researched over 100 candlesticks and used approximately 5 million candle lines to create a book nearly 1,000 pages long that tells almost everything I could think of about how candles behave and how to trade them.

What is my reward? A person wrote to me today and told me that the book was on sale for $15. Was this cheap version complete? My publisher says it is an illegal copy of an electronic version of the book. A check of the internet reports 47 websites offering illegal copies.

I’m disappointed in humanity.

# # #

I started this blog almost a year ago, but it is now pulling in over 40,000 visits a month. But I do not consider this blog the main draw. I use the site as a reference source. If you are new to this blog, then consider what ThePatternSite.com has to offer, all for free....

• Home This is the main nerve center of the website. From here, you can access over 400 pages of content on the site.
• Candlestick patterns. I have over 100 candlestick patterns described, including identification guidelines and performance statistics.
• Chart patterns. I have almost 100 chart pattern pages which show ID guidelines, statistics, and trading tactics.
• Event patterns. Never heard of an event pattern? Click on the link to learn about a dozen of them, including the dead-cat bounce and the earnings flag.
• Elliott waves. The link shows 20 pages of Elliott wave patterns.
• Quizzes. Download a practice taking over 150 quizzes on chart patterns featuring many actual trades of mine.
• Studies. Here are over 35 studies on price patterns, giving full details on how I did them and what they mean.
• Trading setups. I discuss 15 trading studies for options player, day traders, and stock traders.
• Trading help/other. Have a trading problem? Perhaps you can find the answer at this link.
• Subscribe to RSS feeds . Located near the top left of many website pages, this is an easy and quick way to discover if the website has new content to view. Messages include new blog postings, but also alerts on changes to my watch list, chart pattern indicator status, and test portfolios. The What’s New page also lists major content changes to the site.
• My watch list. Here is where you will find the stocks that I may or may not add to my personal portfolio. If I do buy a stock, it will come from this list.
• FAQ. This is a list of frequently asked questions. Look here before contacting me. Want to know how little I make on my books? Pull out your calculator and read the FAQ.
• Visual index. Don’t know what a chart pattern is called? Visit this page or the one on candlesticks for a visual feast!
• Blog archives. Here is where the old blog posts go to die.
• Search. Located on the upper left of most pages is a search link. Click on that to conduct a site search or internet search.
• Site map. This page shows the website layout by category, making it easy to find things link interviews and a glossary.
• Patternz. This is my free software pattern recognition program and free quote downloader.

Most of these pages can be accessed through the buttons at the top of this page or along the top left. Web pages with a blue background are the old format which I am converting to the new (white background) format. Since I have over 400 pages to convert and it can take up to an hour for each page, the transition is a work in progress. With so many stealing my work, they will probably have it converted before I do.

-- Thomas Bulkowski

Monday, 1/5/2009. The CHG Trades.

I got lucky in 2008. My largest holding, CH Energy Group (CHG), decided to make a run for the all-time high toward the end of the year. It didn’t make it, but the run up was a delicious one for my wallet.

According to Yahoo!Finance, the company is an electric and natural gas utility with operations in New York State, serving 372,000 customers in the Mid-Hudson Valley region with a subsidiary tending to the installation and maintenance of HVAC equipment primarily in the Eastern states.

I first bought this stock back in 2004 four times in the 40s and sold it for $51.60 in March 2007 just after price peaked. During that time, I collected the dividend which was high compared to the yield of other utilities and banks deposits.

Being overloaded with cash, I jumped in again and bought the stock seven more times since March 2007, the most recent buy was on October 10, at $34.80. The chart shows the date and approximate price.

I disclosed ownership in any company whenever I discuss it (see April 3 and again in October 13), so by reading this blog and (website), you can sometimes figure out what I am trading.

Let’s turn back to the chart. As a long time owner of the stock, you become accustomed to its personality. You instinctively know when it is cheap and when it is not. When the stock took a pounding along with the rest of the market on October 10, I snapped up more shares. On that date, the stock reached a low for the year, and I didn’t want to miss the chance to buy the company at fire-sale prices.

With a long-term holding, I am not afraid to average down (buy at lower and lower prices, dropping the average cost of the shares). If this were a short-term trade, then I do not average down. Often, short term trades do not give the stock enough time to recover, so you take a larger loss when you do sell. Remember that the only way you make money by averaging down is if the stock recovers. Keep the word Enron in mind.

The stock made tall daily swings, following in the footsteps of a volatile market but generally moved higher. When it approached the price of the mid September peak, I knew that the stock would probably turn, based on overhead resistance. I decided to sell, but not all of my holdings, and not all at once either.

A stock making a rounded bottom often (but not always) forms a cup-with-handle chart pattern. Sometimes the stock just keeps on climbing, going almost vertical. I did not want to sell my entire position only to see the stock continue higher. Thus, as price climbed, I sold the stock six times on or after December 24 (see the red line) but still own it. Even though I dumped more than half of my position, it is still my largest holding. That tells you how overweight I was in this one holding and that is why I beat the market handsomely this year. It also suggests what a concentrated portfolio can do for you when things work out properly. I have been wanting to cut my position size for months now, and this was the perfect opportunity.

I am not recommending that you buy only one stock and put your net worth into it. But I viewed the dividend as safe and it was much better than holding cash (higher yield than the money market funds). I chose the stock to collect the large (at the time of purchase) dividend and also for possible capital gains.

I plan to sell more of the stock in the coming days but still retain a position. I believe this will retrace and form a handle. I do not believe there is much more upside left, but I will collect the dividends while I wait for its next step.

-- Thomas Bulkowski