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Stock Market Analysis Using Candlesticks Shows The Health Of The Market

Using our complete system of Candlestick analysis, you are able to tell at a glance how healthy the stock market is at any time. 

A simple analysis of the charts below should tell you we are at a crucial crossroad in the stock market right now. The NASDAQ has bounced off its 50-day moving average for the second time in a couple of weeks, and actually closed right below it. If that was a true bounce, then we may be “out of the woods” for awhile. But if that average is breached, we may be in for a sizable correction. 

Indeed, it is becoming more and more difficult to make money in the current market environment, especially on the long side. Nice base breakouts are failing, with stock prices falling right back into the prior basing area. One of our favorite long-term picks, TASR, had its biggest selloff day in months on Thursday, although it had a nice bounce-back on Friday.

But we are not totally negative at this time. After all, there will always be exciting “news” related plays every day. One of our Members pointed out VAPH this week, which soared almost 50% on Friday alone! You don’t need too many of those to balance out some of the other not-so-strong stocks in your portfolio.

Also, we may be heading into more of a non-trending market, where you have to use a slightly different set of tactics as part of your overall investing strategy. This could mean settling for more very short-term, small gains with more active trading. And in this kind of market, our candlesticks system is a crucial tool in your stock market analysis arsenal.  The use of candlestick charts makes analyzing a trend very easy



Stock Market Analysis With Candlesticks Instantly Shows Market Direction


Two weeks ago the NASDAQ bounced up off the 50 day moving average with a Doji / Harami, showing the downtrend had stopped. This past week, the uptrend was stalled by a Bearish Harami, followed by weakness. Although not terribly convincing because the stochastics were still in an uptrend, the weakness was confirmed with the large Bearish Engulfing pattern on Thursday.

Friday showed follow-through confirmation. The NASDAQ closed again right on the 50-day moving average. However the difference this time is that the stochastics are in the overbought area and turning down. There is a possibility of seeing some consolidation on the 50-day moving average, but there's still a lot of room to the downside as far as stochastics indicate.

Whereas two weeks ago the up-move in the NASDAQ was foreseeable due to the Dow not wanting to sell off, two weeks later the Dow showed an end to the uptrend with a Bearish Harami.



The first Bearish Harami on February 12 was followed by a confirming sell one day later. The next day, a Bullish Engulfing pattern. But the Bullish Engulfing pattern should always be viewed as a sell signal when the stochastics are in the overbought area. This is usually last gasp buying, which was confirmed the next day with another Bearish Harami.

It becomes obvious when the stochastics are turning down and you start seeing Bearish Harami's forming, that the buyers are having a hard time moving prices higher. Again this is not rocket science, this is just common sense observation from what the candlestick signals are telling us.

The clincher, as you may have seen in our Market Comments, was that after the Harami on Wednesday, the Dow needed to have a strong finish on Thursday. This would've negated the Harami. But the fact that the Dow could not hold up into the close on Thursday was more evidence the sellers were taking control. The Shooting Star confirmed there was no strength left in the uptrend. This could lead to a pullback to the 50-day moving average.

 

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