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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 07/28/2014
16,983 22.02 0.1%
8,333 -95.18 -1.1%
563 6.97 1.3%
4,445 -4.65 -0.1%
1,979 0.57 0.0%
YTD
2.4%
12.6%
14.9%
6.4%
7.1%
Tom's Targets    Overview: 07/15/2014
17,300 or 16,500 by 08/01/2014
8,700 or 8,150 by 08/15/2014
575 or 535 by 08/01/2014
4,500 or 4,250 by 08/01/2014
2,050 or 1,900 by 08/01/2014
Mutt Winners: None YTD

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

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Tuesday 7/29/14. Trading Tuesday: Dow

The index climbed by 0.1% or 22.02 points. Since 10/01/1928 the index made 1246 similar moves on a percentage basis. After those moves, the next day's...
     Average gain was 0.6% on 641 occasions.
     Average loss was -0.7% on 605 occasions.
Expect the index to close higher 51.4% of the time.
Weekly, since inception on 6/14/2011:
     The prediction of the index closing higher has been right 78/119 or 65.5% of the time.
     The prediction of the index closing lower has been right 21/39 or 53.8% of the time.

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.

Picture of the Dow industrials on the 5 minute scale.

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

On Friday, the index moved horizontally at A, forming a rectangle bottom.

Here is an interesting take on today's (Monday's) action. The index is making an Elliott wave, motive wave higher. This comes in five pieces, four of which occurred today.

The big question is, will tomorrow (Tuesday) show a completion of wave 5? Will we then enter an ABC correction, sending the index lower?

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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© 2014 ThePatternSite.com    Metric  Value  Diff  Close (within 10% of the high-low range for the day)? 
 Monthly S2  16,554.61    
 Monthly S1  16,768.60  213.99   
 Weekly S2  16,792.78  24.18   
 Daily S2  16,830.24  37.46   
 Low  16,877.72  47.48   
 Weekly S1  16,887.68  9.96   Yes! The Weekly S1 is close to the Low.
 Daily S1  16,906.41  18.73   
 61.8% Down from Intraday High  16,924.96  18.54   
 50% Down from Intraday High  16,939.55  14.59   
 Daily Pivot  16,953.90  14.35   
 38.2% Down from Intraday High  16,954.14  0.25   Yes! The 38.2% Down from Intraday High is close to the Daily Pivot.
 Open  16,956.91  2.77   Yes! The Open is close to the 38.2% Down from Intraday High.
 Monthly Pivot  16,960.08  3.17   Yes! The Monthly Pivot is close to the Open.
 Close  16,982.59  22.51   
 High  17,001.38  18.79   
 Weekly Pivot  17,010.56  9.18   Yes! The Weekly Pivot is close to the High.
 Daily R1  17,030.07  19.52   
 Daily R2  17,077.56  47.48   
 Weekly R1  17,105.46  27.91   
 Monthly R1  17,174.07  68.61   
 Weekly R2  17,228.34  54.27   
 Monthly R2  17,365.55  137.21   

Monday 7/28/14. Market Monday: The Week Ahead

My Prediction

Picture of the Nasdaq composite on the daily scale.

I show a picture of the Nasdaq composite on the daily scale.

What happened to my portfolio this week has me worried. A few stocks got hit because of poor earnings. That happens from time to time but it hasn't happened to me in years. One or two got hit and another dropped because it's buying another company.

And yet when I look at the charts of the 600 or so securities I follow, many are moving up, struggling to do so, but still holding their own. Those with earnings problems are taking a hit. Nothing new there. The chart pattern indicator is still bearish. It's not convinced either that the market is sound right now.

Let's look at the chart of the Nasdaq. Peaks A and B have the potential to form a double top chart pattern. That hasn't happened yet because the index needs to close below the red line at C. Until it does, you're just looking at squiggles on the price chart.

Let's say the index closes above the taller of the two peaks instead of below the red line. What Then? That would bust the double top and I'll bet the index moves up smartly. That's a guess and it usually applies to valid double tops, not those that do not confirm.

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A Brief Look Back

Picture of a flower from my garden.

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.

Monday: Down 48.45 points.
Tuesday: Up 61.81 points.
Wednesday: Down 26.91 points.
Thursday: Down 2.83 points.
Friday: Down 123.23 points.

For the Week...

The Dow industrials were down 139.61 points or 0.8%.
The Nasdaq composite was up 17.41 points or 0.4%.
The S&P 500 index was up 0.12 points or 0.0%.

Year to Date...

Dow Industrials
     1.1% down from the high of 17,151.56 on 07/17/2014.
     10.6% up from the low of 15,340.69 on 02/05/2014.
Nasdaq
     0.8% down from the high of 4,485.93 on 07/03/2014.
     12.8% up from the low of 3,946.03 on 04/15/2014.
S&P 500
     0.7% down from the high of 1,991.39 on 07/24/2014.
     13.8% 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
Consumer confidence10:00 TB-Surveys 5,000 households for trends.
Gross domestic product8:30 WBMeasures economic activity; GDP deflator measures inflation.
Crude inventories10:30 W?My guess: Measures oil inventory.
FOMC Rate decision2:00 W?The Federal Reserves reports on interest rate changes.
Initial jobless claims8:30 ThC+Counts people filing for state unemployment benefits.
Chicago purchasing managers index9:45 ThBMonitors regional manufacturing activity.
4 Employment reports8:30 FANonfarm payrolls, unemployment rate, avg workweek, hourly earnings.
Personal income & consumption8:30 FC+Measures sources of income to predict future demand.
Personal consumption expenditures8:30 FC+Covers durables, non-durables, and services.
Michigan sentiment9:55 FB-Consumer sentiment: Measures strength of consumer spending.
Construction spending10:00 FDCovers residential/non-residential/public spending on new construction.
Auto & truck sales2:00 FC-Monthly sales of domestically produced vehicles.

Options Expiration

No options expire this week.

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Swing and Position Traders: Chart Pattern Indicator

As of 07/25/2014, the CPI had:

66 bearish patterns,
7 bullish patterns,
326 patterns waiting for breakout.
The CPI signal is 9.6%, which is bearish (<= 35%).

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.

IndexS2S1PivotR1R2
Dow Industrials (^DJI): Daily  16,820  16,890  16,986  17,057  17,153 
Weekly  16,785  16,873  17,003  17,091  17,221 
Monthly  16,547  16,754  16,953  17,159  17,358 
S&P500 (^GSPC): Daily  1,969  1,974  1,979  1,984  1,989 
Weekly  1,953  1,966  1,979  1,991  2,004 
Monthly  1,925  1,952  1,971  1,998  2,018 
Nasdaq (^IXIC): Daily  4,418  4,434  4,446  4,462  4,474 
Weekly  4,366  4,408  4,447  4,489  4,528 
Monthly  4,278  4,364  4,425  4,511  4,571 
  • 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 down 29.7%   The trend may continue. 
 6 months up 7.2%   Expect a reversal soon. 
 S & P 500 (^GSPC) 2 weeks up 29.5%   The trend may continue. 
 6 months up 16.9%   Expect a reversal soon. 
 Nasdaq composite (^IXIC) 2 weeks up 30.1%   The trend may continue. 
 3 months up 31.3%   The trend may continue. 

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
13Head-and-shoulders top
11Double Top, Adam and Adam
8Broadening top
7Rectangle top
7Triangle, ascending
7Channel
6Double Top, Eve and Eve
6Rising wedge
5Double Top, Eve and Adam

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. Petroleum (Producing)1. Petroleum (Producing)
2. Shoe2. Natural Gas (Distributor)
3. Natural Gas (Distributor)3. Semiconductor Cap Equip.
4. Petroleum (Integrated)4. Natural Gas (Diversified)
5. Cement and Aggregates5. Cement and Aggregates
50. Toiletries/Cosmetics50. Building Materials
51. E-Commerce51. E-Commerce
52. Homebuilding52. Toiletries/Cosmetics
53. Retail Building Supply53. Retail Building Supply
54. Short ETFs54. Short ETFs

-- Thomas Bulkowski

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Saturday 7/26/14. A Book Value Setup.

I was flipping through my book, Fundamental Analysis and Position Trading, when I came across this gem on page 35.

Pick stocks with the following attributes.

  • Select stocks priced below $16.
  • Book value per share should be below 1.0.
  • Book value per share this year should be lower than last year.
  • Select small cap stocks (less than $1 billion in market value).
  • Return on equity should be rising.

If you want more information, buy the book and read the chapter on book value. It might make you a lot of money. Or not.

-- Thomas Bulkowski

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