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October 10 Market Direction

Although the indexes trading positive today, there is still some doubt as to whether a major changes occurred in investor sentiment. The Dow traded positive but still had a hard time getting out of the wedge formation that has been forming over the past three weeks. Both the Dow and S&P 500 traded back to the lower end of their trading range today, staying within the overall trading range of the past few weeks. The NASDAQ formed a little kicker signal to the upside, creating a much stronger indication that investor sentiment was still maintaining a slow upward bias. The graphics of the major indexes, although showing slightly positive direction, still indicate there is no major strong bullish pressure in the market trend. This makes the investment strategy the same as has occurred over the past few weeks. Stay predominantly long but with viable short positions in the portfolio until there is a dramatic and clear signal that investor sentiment is moving one way or the other.

 

The advantage of the candlestick charts provide much more clear indication of what the general investor sentiment is in the markets.

When the overall market trend is not moving with great force one way or the other, the candlestick charts still provide numerous trade situations. As illustrated in the LXRX recommendation, a candlestick signal could be anticipated which would further confirmed the pattern that was developing. The bullish Doji sandwich would indicate the J-hook pattern was still in progress. Taking advantage of candlestick patterns have two major benefits.

First, it provides a high probability trade, being in the right direction. Not only with being in the right direction, but the price move will still move in the appropriate direction even if there is a major change in the general markets. Secondly, not only is the direction of the move easily identified, but a price pattern will usually produce profitable moves much greater than a mere trending position. This is still a result of being able to identify what human nature usually provides as far as reoccurring thought processes, which equate to high probability price patterns.

 

We will conduct a "Members Only" chat session tonight at 8:00 p.m EST.

Good Investing,

The Candlestick Forum Team


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