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

Tuesday 7/29/14. Trading Tuesday: Dow

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.

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

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

• My Prediction
• A Brief Look Back
• Upcoming Economic Reports
• Options Expiration
• Swing and Position Traders: Chart Pattern Indicator
• Swing Traders: Pivot Points
• Consecutive Price Trends
• Buy-and-Hold: 12-Month SMA
• Earnings, Chart Patterns & Industries

My Prediction

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.

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...

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
Consumer confidence	10:00 T	B-	Surveys 5,000 households for trends.
Gross domestic product	8:30 W	B	Measures economic activity; GDP deflator measures inflation.
Crude inventories	10:30 W	?	My guess: Measures oil inventory.
FOMC Rate decision	2:00 W	?	The Federal Reserves reports on interest rate changes.
Initial jobless claims	8:30 Th	C+	Counts people filing for state unemployment benefits.
Chicago purchasing managers index	9:45 Th	B	Monitors regional manufacturing activity.
4 Employment reports	8:30 F	A	Nonfarm payrolls, unemployment rate, avg workweek, hourly earnings.
Personal income & consumption	8:30 F	C+	Measures sources of income to predict future demand.
Personal consumption expenditures	8:30 F	C+	Covers durables, non-durables, and services.
Michigan sentiment	9:55 F	B-	Consumer sentiment: Measures strength of consumer spending.
Construction spending	10:00 F	D	Covers residential/non-residential/public spending on new construction.
Auto & truck sales	2:00 F	C-	Monthly sales of domestically produced vehicles.

Options Expiration

No options expire this week.

Swing and Position Traders: Chart Pattern Indicator

As of 07/25/2014, 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.

Buy-and-Hold: 12-Month SMA

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

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.