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February 21st Market Direction

THE DOW, S&P 500, AND NASDAQ gapped up on the open today, in the overbought area. Although the markets appear to be closing at the high end of their trading range, today's gap up needs to be taken into account. Keep in mind, where do most people buy, they buy exuberantly at the top. There has not been any indication of any selling yet, but today's gap up open should produce a little bit more scrutiny as far as watching for any potential reversals. Prognosis, the uptrend remains in progress but be a little bit more attentive for taking profits. A good protection from allowing profits to disintegrate if the market takes a profit-taking turn is to remain with candlestick patterns. Because a pattern is the development of investor sentiment getting stronger, producing much bigger profits based upon a breakout of that pattern, even when the markets in general turn the opposite direction, a candlestick price pattern continues to maintain residual strength. This allows the candlestick investor and extra day or two to take profits without the pattern reversing immediately. This is based upon the pattern having developed because of criteria other than the market merely moving positive.

A breakout of an expected pattern produces much stronger profitability. This is due to the build up of investor sentiment that eventually leads to be exuberant buying that usually occurs at the top of a price move. A breakout could be seen today in AMZN, breaking out through an obvious resistance level. The same breakout potential could be seen in our recommendation of EXAS. Knowing what is expected coming out of a candlestick pattern allows the candlestick investor to be in investment situations that have the prospects of very high probabilities of high profit trades. Our recommendation on AMN was merely visually identifying where a frypan bottom pattern was about to breakout. Candlestick analysis is nothing more than identifying what has occurred in human nature time after time. Human nature creates observable price patterns. Being able to identify those patterns and knowing what the results of those patterns should be allows the candlestick investor to constantly be participating in high probability trades.


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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