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May 22nd Market Direction

 

Last Wednesday's big selloff showed a dramatic change of investor sentiment with a Doji followed by a gap down and a close well below the T-line. This would have indicated the probabilities of more bearish sentiment. However the following day, the indexes started showing bullish reversal signals. The NASDAQ created a piercing signal. This at least provided the prospects of knowing which way the market was moving based upon how the trading opened after the buy signals. As seen, the NASDAQ is formed a bullish Doji sandwich bringing the trading backup above the T-line and above the open of the big bearish candle of Wednesday. This produces a new and obvious candlestick scenario. The J-hook pattern of the markets reveal the possibility once again of a another wave to the upside, a J-hook pattern wave three. The probabilities of the uptrend remaining in progress is very simple to assess. As long as the indexes continue to trade above the T-line, it has to be assumed the uptrend remains in progress.

Another valuable piece of information that can be illustrated in candlestick charts is a simple visual analysis of relative strength. Our purchase of the June 10 calls in BBRY at $.34 last week was held through the big selling day of Wednesday because of the lack of any selling indication in the chart. This is not rocket science. Observing that there was indecisive selling and no real pullback provided the visual evidence that there was still going to be continued strength in BBRY. Continuing to hold that position was also reinforced by the fact that there was no candlestick sell signal and no close below the T-line. Whereas other chart patterns showed closes below the T-line, the correct trade program was to close those positions out but be ready to buy back if they came back up above the T line. This simple visual technique allows investors to continue to hold strong bullish positions when the market is absolutely going in the wrong direction and closing out positions that demonstrate sell signals. When new strength comes into the markets, stock charts such as BBRY will usually have continued strength, currently moving the June 10 calls from $.34 up to $1.52. The visual analysis of candlestick charts provide an immense amount of information that can greatly reduce the emotions involved in investing.

 

 

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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