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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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Bulkowski's Blog: ThePatternSite.com
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Busted
Patterns
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Patterns
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Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 12/26/2014
18,054 23.50 0.1%
9,200 20.76 0.2%
636 7.04 1.1%
4,807 33.39 0.7%
2,089 6.89 0.3%
YTD
8.9%
24.3%
29.6%
15.1%
13.0%
Tom's Targets    Overview: 12/12/2014
18,500 or 17,500 by 01/15/2015
9,300 or 8,500 by 01/01/2015
650 or 580 by 01/15/2015
4,950 or 4,700 by 01/15/2015
2,125 or 2,025 by 01/15/2015

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

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Wednesday 12/24/14. Chart Pattern Indicator: What's It Say?

Picture of the chart pattern indicator

This is a picture of the chart pattern indicator on the daily scale. The indicator is the line chart below a chart of the S&P 500 composite.

The chart shows nothing exciting, really. The indicator has impaled itself against the ceiling, 100. I'm scratching my head on this since my portfolio said the Dow's 154 point move 0n 12/22 seemed narrow to me (meaning I didn't make as much as I should have). Maybe it's the shortened holiday week that is throwing off my game.

Picture of the chart pattern indicator

This is another view of the CPI only it shows signal changes.

This chart shows green bars for bullish signals, white for neutral, and red for bearish. Recently, the green bars have taken over.

My worry is not about these two charts. They are bullish. Rather, it's about a possible 2B patterns. That's when a security such as the Dow rises to near or at the level of a prior peak and stops. It can rise slightly above it, as in this case, or remain slightly below it. Then you see a reversal. The reversal is often short but you never know.

$ $ $

I'm going to pretend I'm a submarine going under the ice until the close of Monday's trading. I'll be quiet until then. I'll be here, but just taking a break from my commentary duties.

If you like this site or this blog then please click the Google plus 1 (g+1) thingy immediately below. I'm supposed to have over 2,000 unique daily visitors but only 23 of you like this page. That doesn't sound right.

Have a happy and safe holiday, too.

-- Thomas Bulkowski

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Tuesday 12/23/14. Intraday Market Direction: Dow

The index climbed by 0.9% or 154.64 points. Since 10/01/1928 the index made 484 similar moves on a percentage basis. After those moves, the next day's...
     Average gain was 0.6% on 286 occasions.
     Average loss was -0.7% on 198 occasions.
Expect the index to close higher 59.1% of the time.
Weekly, since inception on 6/14/2011:
     The prediction of the index closing higher has been right 86/137 or 62.8% of the time.
     The prediction of the index closing lower has been right 22/41 or 53.7% of the time.

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

Picture of the Dow industrials on the 5 minute scale.

$ $ $

I show a picture of the Dow industrials on the 5-minute scale.

A double bottom appears at AB. This confirmed as a valid pattern when the index closed above the peak between the two bottoms.

More recently, a rising wedge appears at C. A rising wedge breaks out downward 69% of the time (in stocks). That suggests a lower close on Tuesday. If that happens, it will be at odds with the above probabilities which are looking for a higher close.

$ $ $

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  16,749.14    
 Weekly S2  16,827.25  78.11   
 Monthly S1  17,354.29  527.04   
 Weekly S1  17,393.34  39.05   
 Weekly Pivot  17,633.69  240.34   
 Monthly Pivot  17,672.74  39.05   
 Daily S2  17,760.96  88.22   
 Low  17,812.25  51.29   
 Open  17,812.25  0.00   Yes! The Open is close to the Low.
 Daily S1  17,860.20  47.95   
 61.8% Down from Intraday High  17,869.75  9.55   Yes! The 61.8% Down from Intraday High is close to the Daily S1.
 50% Down from Intraday High  17,887.52  17.76   
 38.2% Down from Intraday High  17,905.28  17.76   
 Daily Pivot  17,911.49  6.21   Yes! The Daily Pivot is close to the 38.2% Down from Intraday High.
 Close  17,959.44  47.95   
 High  17,962.78  3.34   Yes! The High is close to the Close.
 Daily R1  18,010.73  47.95   
 Daily R2  18,062.02  51.29   
 Weekly R1  18,199.78  137.76   
 Monthly R1  18,277.89  78.11   
 Weekly R2  18,440.13  162.24   
 Monthly R2  18,596.34  156.21   

Monday 12/22/14. Pullback in the Transports

My Prediction

Picture of the Dow transports on the daily scale.

I show a picture of the Down transports on the daily scale.

The index sports a diamond top, outlined here in red. At A, the index has pulled back to the price of the breakout, just as well-behaved pullbacks should.

The question now is what happens next?

With diamond tops, the fear is that the quick rise from the low at B to the diamond will reverse. That means a decline all the way back down to not B, but just above B. (It's rare that you get a full retrace.)

Alternatively, the pullback will continue and move to higher ground. That is what you are seeing in the other indices, the Dow utilities, for example. And that is what I expect to happen in the coming week or two. This week, since it's holiday shortened, can be volatile. See my holiday article to find out what happens the day before and after the Christmas holiday, as well as other holidays.

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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 99.99 points.
Tuesday: Down 111.97 points.
Wednesday: Up 288 points.
Thursday: Up 421.28 points.
Friday: Up 26.65 points.

For the Week...

The Dow industrials were up 523.97 points or 3.0%.
The Nasdaq composite was up 111.78 points or 2.4%.
The S&P 500 index was up 68.32 points or 3.4%.

Year to Date...

Dow Industrials
     1.0% down from the high of 17,991.19 on 12/05/2014.
     16.1% up from the low of 15,340.69 on 02/05/2014.
Nasdaq
     0.9% down from the high of 4,810.86 on 11/28/2014.
     20.8% up from the low of 3,946.03 on 04/15/2014.
S&P 500
     0.4% down from the high of 2,079.47 on 12/05/2014.
     19.1% 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
Existing home sales10:00 MCCounts sales of used homes.
Durable goods orders8:30 TBMeasures orders, shipments of goods with lifespans >3 years.
Gross domestic product8:30 TBMeasures economic activity; GDP deflator measures inflation.
Michigan sentiment9:55 TB-Consumer sentiment: Measures strength of consumer spending.
Personal income & consumption8:30 or 10:00? TC+Measures sources of income to predict future demand.
Personal consumption expenditures8:30 or 10:00? TC+Covers durables, non-durables, and services.
New home sales10:00 TC+Shows sales of single-family homes.
Initial jobless claims8:30 WC+Counts people filing for state unemployment benefits.
Crude inventories10:30 W?My guess: Measures oil inventory.

Options Expiration

No options expire this week.

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Swing and Position Traders: Chart Pattern Indicator

As of 12/19/2014, the CPI had:

2 bearish patterns,
24 bullish patterns,
293 patterns waiting for breakout.
The CPI signal is 92.3%, which is bullish (>= 65%).

The chart pattern indicator is bullish with 1 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.

IndexS2S1PivotR1R2
Dow Industrials (^DJI): Daily  17,681  17,743  17,808  17,870  17,936 
Weekly  16,776  17,290  17,582  18,097  18,389 
Monthly  16,698  17,251  17,621  18,175  18,545 
S&P500 (^GSPC): Daily  2,053  2,062  2,070  2,079  2,087 
Weekly  1,935  2,003  2,040  2,108  2,146 
Monthly  1,934  2,002  2,041  2,109  2,148 
Nasdaq (^IXIC): Daily  4,718  4,742  4,762  4,786  4,806 
Weekly  4,463  4,614  4,698  4,849  4,933 
Monthly  4,444  4,605  4,708  4,868  4,971 
  • 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 up 43.8%   Expect a random direction. 
 1 month down 19.2%   Expect a reversal soon. 
 S & P 500 (^GSPC) 1 week up 43.1%   Expect a random direction. 
 3 months up 36.2%   The trend may continue. 
 Nasdaq composite (^IXIC) 1 week up 44.2%   Expect a random direction. 
 1 month down 25.3%   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 over.

Mutual funds will begin dividend distributions and rebalancing their portfolios for the approaching year end (starts in late November).

 Found Chart Pattern Name
26Scallop, ascending and inverted
17Triangle, symmetrical
11Head-and-shoulders top
11Pipe top
9Channel
8Diamond top
8Broadening top
7Double Top, Adam and Adam
7Flag
6Broadening top, right-angled and ascending

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. Biotechnology1. Biotechnology
2. Medical Supplies2. Air Transport
3. Drug3. Shoe
4. Air Transport4. Electric Utility (West)
5. Securities Brokerage5. Medical Supplies
50. Metal Fabricating50. Cement and Aggregates
51. Petroleum (Integrated)51. Petroleum (Integrated)
52. Natural Gas (Diversified)52. Natural Gas (Diversified)
53. Oilfield Svcs/Equipment53. Oilfield Svcs/Equipment
54. Petroleum (Producing)54. Petroleum (Producing)

-- Thomas Bulkowski

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