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Written and copyright © 2014 by Thomas N. Bulkowski. All rights reserved.
Monday 4/21/14. Market Monday: The Week Ahead
My Prediction
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.
A Brief Look Back
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.
Economic Reports
The following information is derived from yahoo!finance and sometimes Bloomberg.com with times local to the east coast.
| Report | Time | A-F
Rating | Description |
| Leading indicators | 10:00 M | D- | Summary of already known reports. |
| Existing home sales | 10:00 T | C | Counts sales of used homes. |
| New home sales | 10:00 W | C+ | Shows sales of single-family homes. |
| Crude inventories | 10:30 W | ? | My guess: Measures oil inventory. |
| Initial jobless claims | 8:30 Th | C+ | Counts people filing for state unemployment benefits. |
| Durable goods orders | 8:30 Th | B | Measures orders, shipments of goods with lifespans >3 years. |
| Michigan sentiment | 9:55 F | B- | Consumer sentiment: Measures strength of consumer spending. |
Options Expiration
No options expire this week.
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.
| Index | S2 | S1 | Pivot | R1 | R2 |
| 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
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.
Earnings, Chart Patterns & Industries
Earnings season is either underway or should be starting soon. The sessions could be more volatile.
| Found | Chart Pattern Name |
| 17 | Triangle, symmetrical |
| 14 | Head-and-shoulders top |
| 7 | Triple top |
| 7 | Scallop, ascending and inverted |
| 7 | Double Top, Eve and Adam |
| 6 | Double Top, Adam and Adam |
| 6 | Double Top, Eve and Eve |
| 6 | Broadening wedge, descending |
| 6 | Broadening top |
| 6 | Head-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 Week | Last Week |
| 1. Cement and Aggregates | 1. Cement and Aggregates |
| 2. Air Transport | 2. Air Transport |
| 3. Chemical (Specialty) | 3. Chemical (Specialty) |
| 4. Aerospace/Defense | 4. Aerospace/Defense |
| 5. Drug | 5. Drug |
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| 50. Retail Building Supply | 50. Retail Building Supply |
| 51. E-Commerce | 51. E-Commerce |
| 52. Toiletries/Cosmetics | 52. Toiletries/Cosmetics |
| 53. Retail (Special Lines) | 53. Retail (Special Lines) |
| 54. Short ETFs | 54. Short ETFs |
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-- Thomas Bulkowski
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.
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