Market value is a term that is used frequently in the financial world and Wall Street news. This is a snapshot of the overall value of a company. To figure market value, you multiply the number of outstanding shares the company has by the price per share. For example, a company that has 10 million shares of stock and their price is $10 per share, the market value of the company is $100 million.

How big is big?
Large capitalization companies, or large cap stocks as they are known, are by far the biggest players in the stock market. “How big”, you ask? A market value of $5 billion generally qualifies a company for large cap stock status. At the top end are companies like Wal-Mart with $197 billion, Microsoft with $291 billion and ExxonMobil leads the way at $419 billion. If you look at the entire group of large cap stocks, they account for 72% of the entire market, showing exactly how dominant these companies really are!

Large cap stocks also have a huge role in pushing the economy, and in turn they garner much attention. The two best known market indexes, the Dow Jones Industrial Average and the Standard & Poor’s 500, are both made up of large-cap stocks.

The impact of large-cap stocks on the economy
Why are these large cap stocks so important? Each one of these companies is like a huge ocean liner; even in rough waters a large ship is hard to capsize. The same is true for these companies; what they lack in speed they make up in size. Classic blue chip stocks have a continuous flow of revenue, steady earnings and consistent dividends. Since they are so large, they tend to be unaffected by rough economic times. These large cap stocks appear in so many stock portfolios because they are stabilizing, defensive investments, neither growing too rapidly nor falling too dramatically based on the stock market news reports of the day.

Non-traditional and Pseudo Large Cap Stocks
The 1990’s unleashed a new phenomenon on the stock market. Companies were achieving large cap stock status at incredible rates, some even before they actually earned it. While companies like Microsoft and Intel exploded onto the scene other companies kind of snuck in; at one time Price line was valued at more than $23 billion before it came tumbling down like other Internet stocks. At the start of 2007, Price line had a market value of around $1.6 billion.

The large cap stock lesson of the 1990’s is that while some of these non-traditional large cap stocks were able to actually reach and maintain their status, the pseudo large cap stocks we exposed as over-valued small cap stocks or mid-caps. As with most stock market movers, these companies found there true position as their market values were truly determined.

Large cap stocks and their risk vs. reward
Large cap stocks tend to resist being viewed as speculative stocks; in fact many of them are considered perfect for defensive investing because of their immense size, their history of consistency and tendency to pay dividends. They do experience their ups and downs, but large cap stocks are not normally victims of the stock volatility that their smaller siblings experience and thus have acceptable risk reward ratios.

Role of large cap stocks in a stock portfolio
Because they bring so many positives to the table, large cap stocks are a valuable part of portfolio diversification. These stocks provide stability and long term investing protection. Although they are not usually big gainers, large cap stocks can provide the portfolio stability so that investors can add other speculative stocks for their increased earnings potential. Large cap stocks can give any investor the security of running with the big dogs!

Market Direction:

A Doji is a signal that provides much valuable information. A Doji formation represents the indecision between the Bulls and the Bears during a specific timeframe. A Doji in the overbought condition is a definite sell signal.

ISE

A Doji in the oversold condition needs to see confirmation buying to confirm a reversal. These are some of simple rules for analyzing Dojis during a trend. Another simple rule is that a trend will usually move in the direction of how they open the price after a Doji. This is not a rule set in stone, just a general observation. However, this information becomes a valuable tool when analyzing a price trend.

DOW

The Dow had been in a steady uptrend since August. Each time it pulled back to the 20 day moving average, it had been forming indecisive signals such as Dojis and Hammers. It did that once more this Monday. Was it going to bottom at that level again or was it going to finally break down? The assumption had to be that if the uptrend was going to continue, bullish trading should have been expected on Tuesday's open. That would have fit with the description of the previous uptrend.

What was not wanted if they uptrend was going to continue? The Doji made it a fairly simple analysis. A lower open would indicate the downtrend would continue. As indicated by the general rule that a trend will usually move in the direction of how it opens following a Doji. Seeing that the pre-market futures on Tuesday showed severe selling, that became a good indication that the trend was continuing lower.  How far down with the market go? It would not take too much more selling to move prices below the obvious trend line that had formed over the previous few months of trading. A break of that level might indicate the 50 day moving average would be a possible support.

If the 50 day moving average acted as support, would that be all that terrible? In this case, the Dow had not moved back near the 50 day moving average since August. A test of that level would indicate more selling strength that had been seen for the previous seven months. It would also have moved back below the last low. This now would have produced a new dynamic in the trend. Having that knowledge makes analyzing what to do with the portfolio positions that much easier. The majority of long positions had created situations where a lower open would have required an immediate sale. In the case of Tuesday's huge downdraft, all long positions except two were closed out on the open.

This is not difficult analysis when using candlestick signals. If a new dynamic appears to be affecting a trend, easy-to-implement stop-losses can be put in place. Most long positions were closed out with profits before the huge selling started. The benefit of knowing what creates candlestick signals is that it allows for much more accurate analysis. Fortunately, this analysis is not hard to learn. Candlestick signals merely incorporate common sense logic. Applying that logic to what a trend should be doing takes the emotion out of where to come out of positions.

Candlestick analysis involves projecting where a trend target should move to. Once an observed target is reached, analyzing what the signals are telling us at that level makes entry and exit strategies very mechanical. Projecting the price target and analyzing what the signals are revealing about investor sentiment as that target is being approached creates the format for taking profits at the appropriate levels. Click here for the newly released Projecting Price Targets training CD

Chat session tonight - The chat session tonight at 8 p.m. ET, The guest speaker, Ricky Wayne, will be demonstrating some of his analytical techniques for day trading and very short term swing trading.

Candlestick Training Seminar - April 14 and 15th, Houston, Texas. These two days of intensive training on candlestick analysis will reveal the common sense applications of candlestick signals. The high profit signals and patterns will be supplemented with insights on how to use stop losses correctly, how to project the highest profit potential price moves, initiating high profit trades coming off price patterns, and the application of seasonality aspects of the market. This trading will be attended by candlestick advocates from all over the United States. Whether you are a beginner investor or a proficient trader, the insights you will gain from this training session will improve your trading abilities dramatically. The visual elements that can be conveyed from a candlestick chart can benefit investors of all trading markets. Do not miss this opportunity to learn from trading techniques that will vastly change your perception of how to trade the markets. You will also rub elbows with other candlestick students that can improve your understanding of candlestick analysis.

Good investing,

The Candlestick Forum Staff