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October 13th Market Wrap-Up

The visual graphics of candlestick's make analyzing trends much easier. They allow for much more clarity when analyzing the nature of investor sentiment especially during the formation of a recognizable pattern. The Dow and the S&P 500 have been trading sideways for the past month, creating a wedge formation. Today's trading showed the Dow and the NASDAQ trading back up near the high end of their trading range for the day, creating Doji type days. But today's lower trading breached the lower end of the wedge formation. This allows for very simple analysis. If the markets start trading higher tomorrow, that does not necessarily mean there is a bullish reversal in progress. It merely means the sideways trend of the market remains in progress versus a strong downtrend. A lower open tomorrow would still indicate a blue ice failure would be in progress, making the 200 day moving average the likely target. The blue ice failure pattern is clearly demonstrated by the fact that the downtrending top edge of the wedge continue to show failure of getting up through the 50 day moving average. A lower open tomorrow would produce strong evidence bearish sentiment had taken control, the next support level would be at the 200 day moving average.

Obviously, knowing that a downtrend is likely to be in progress, scanning for the bearish patterns, such as the bearish J-hook pattern, becomes the prudent strategy. The advantage of recognizing the strong bearish patterns is knowing that the magnitude of move in those moves to the downside will be much stronger than merely downtrending stocks during the downtrend.

Public Stock Chat session tonight at 7 PM central with Steve Bigalow and Mark Sebastian. Click here to register.


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