Written by and copyright © 2005-2018 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Some pattern names are the registered trademarks of their respective owners.

Monday 10/22/18. Market Monday: The Week Ahead

• My Prediction
• A Brief Look Back
• Options Expiration
• Swing and Position Traders: Chart Pattern Indicator
• Swing Traders: Pivot Points
• Consecutive Price Trends
• Earnings, Chart Patterns & Industries

My Prediction

Not much is happening on this chart of the Dow Transports on the daily scale.

The index is in the process of forming a double bottom at AB.

This chart pattern won't confirm as a valid one until the index closes above C. It has a ways to go to get there and you might think it's too far away.

Maybe not.

Look at the rise from the DE bottom. To confirmed this double bottom, the index had to close above F, which it did.

So if everyone were to jump into the market, we could push the index back up and confirm this double bottom.

A Brief Look Back

The following is a brief review of how the markets performed over time. The numbers refer to the close-to-close move in the Dow industrials.

For the Week...

Year to Date...

Options Expiration

No options expire this week.

Swing and Position Traders: Chart Pattern Indicator

As of 10/19/2018, the CPI had:

The chart pattern indicator is bearish with 1 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.

• 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:

Consecutive Price Trends

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.

Earnings, Chart Patterns & Industries

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

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.

-- Thomas Bulkowski

Friday 10/19/18. Pattern Trading Setups for the Weekend.

You can find setups based on a Fibonacci retrace by clicking on the link.

Click the link for a list of symbols from the table.

The following patterns were found manually, so the results may differ from those found using Patternz.

There were 5 patterns found this week (excluding pipe bottoms; pipe tops and bottoms are found looking back 2 weeks) out of 604 stocks searched, or 0.8%. Based on the percentage, the stock market is trending since few consolidation patterns appear.

Excluding ETFs, there were 2 bullish chart patterns this week and 1 bearish ones with any remaining (2) being undecided. The ratio of bullish to bearish patterns suggests the market is hinting of a coming bullish (up) turn.

In the table below, the red and green colors are based on the historical breakout direction for the associated chart pattern. If a high and tight flag appears, the start and end dates highlight the flagpole only and not the flag.

More...

-- Thomas Bulkowski

Weekly screen for chart patterns ending between 10/11/2018 and 10/18/2018. Many may be still in development. If no securities appear, then I have not identified any new patterns.

Industry: Medical Services

Industry RS rank: 3 out of 58

Stock RS rank: 60 out of 597

10/18/18 close: $281.19

1 Month avg volatility: $4.46. Volatility stop (for downward breakout): $291.47 or 3.7% above the close.

Change YTD: 24.97%

Volume: 903,800 shares. 3 month avg: 1,801,302 shares.

Since 2009 bear market, the best buy day (fewest up closes) is Friday, and best sell day (most up closes) is Tuesday.

 

Chart pattern: Broadening top reversal pattern from 09/17/2018 to 10/18/2018

Breakout is downward 50% of the time.

Average decline: 15%.

Break-even failure rate: 18%.

Pullbacks occur 48% of the time.

Price hits measure rule target 37% of the time.

Industry: Food Processing

Industry RS rank: 14 out of 58

Stock RS rank: 71 out of 597

10/18/18 close: $150.71

1 Month avg volatility: $2.95. Volatility stop (for upward breakout): $143.68 or 4.7% below the close.

Change YTD: 16.64%

Volume: 73,700 shares. 3 month avg: 112,417 shares.

Since 2009 bear market, the best buy day (fewest up closes) is Wednesday, and best sell day (most up closes) is Tuesday.

 

Chart pattern: Double Bottom, Adam and Adam reversal pattern from 10/03/2018 to 10/12/2018

Breakout is upward 100% of the time.

Average rise: 35%.

Break-even failure rate: 5%.

Throwbacks occur 64% of the time.

Price hits measure rule target 66% of the time.

Industry: Electric Utility (Central)

Industry RS rank: 7 out of 58

Stock RS rank: 168 out of 597

10/18/18 close: $62.43

1 Month avg volatility: $1.58. Volatility stop (for upward breakout): $58.49 or 6.3% below the close.

Change YTD: -1.06%

Volume: 30,800 shares. 3 month avg: 83,160 shares.

This security may be thinly traded (less than 100k shares)!

Since 2009 bear market, the best buy day (fewest up closes) is Wednesday, and best sell day (most up closes) is Tuesday.

 

Chart pattern: Diamond bottom reversal pattern from 09/26/2018 to 10/18/2018

Breakout is upward 69% of the time.

Average rise: 36%.

Break-even failure rate: 4%.

Throwbacks occur 53% of the time.

Price hits measure rule target 81% of the time.

Industry: Healthcare Information

Industry RS rank: 2 out of 58

Stock RS rank: 31 out of 597

10/18/18 close: $19.79

1 Month avg volatility: $0.66. Volatility stop (for upward breakout): $18.29 or 7.6% below the close.

Change YTD: 45.73%

Volume: 221,000 shares.

Since 2009 bear market, the best buy day (fewest up closes) is Wednesday, and best sell day (most up closes) is Friday.

 

Chart pattern: Triple bottom reversal pattern from 10/02/2018 to 10/12/2018

Breakout is upward 100% of the time.

Average rise: 37%.

Break-even failure rate: 4%.

Throwbacks occur 64% of the time.

Price hits measure rule target 64% of the time.

Industry: Natural Gas (Diversified)

Industry RS rank: 17 out of 58

Stock RS rank: 59 out of 597

10/18/18 close: $5.55

1 Month avg volatility: $0.25. Volatility stop (for upward breakout): $4.90 or 11.8% below the close.

Change YTD: -4.80%

Volume: 18,246,600 shares. 3 month avg: 16,683,949 shares.

Since 2009 bear market, the best buy day (fewest up closes) is Friday, and best sell day (most up closes) is Thursday.

 

Chart pattern: Triangle, symmetrical continuation pattern from 09/04/2018 to 10/18/2018

Breakout is upward 54% of the time.

Average rise: 31%.

Break-even failure rate: 9%.

Throwbacks occur 37% of the time.

Price hits measure rule target 66% of the time.

Thursday 10/18/18. Intraday Market Direction: Nasdaq

Since I post this the night before, check how the futures are trading before market open. Large moves can affect the opening direction.

$ $ $

I show a picture of the Nasdaq composite on the 5-minute scale.

Two symmetrical triangles appear on the chart. That's the good news.

Look at the one outlined in blue. That's the first one. Notice how it broke out downward just before the triangle's apex (yes, it's hard to see). Then the index reversed and made a strong push upward.

If we use that as a template for the red triangle, we should see a downward breakout on Thursday followed by a strong upward move going into the weekend. The bullish signal I mentioned in Wednesday's post has disappeared, leaving a bearish signal in place. That is another indicator of weakness coming.

I'm hoping it's very short term (a day or two).

$ $ $

I updated the performance statistics for double tops and bottoms (all types of each).

$ $ $

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

Written by and copyright © 2005-2018 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Some pattern names are the registered trademarks of their respective owners.