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October 8th Market Direction

Last week, the Dow formed an evening star signal. It was accentuated by a Doji that nudged the top of the upper trend channel. The next day, when it opened lower and traded lower back to the T line, the prospects of profit-taking became extremely high. Identifying the evening star signal produced the high probability prospects that the markets/prices were going to start trading lower. For the candlestick investor, this allows for the gradual shifting of positions in the portfolio from predominantly to the long side to the short side. The graphics of each candlestick signal allows an investor to evaluate the nature of investor sentiment. Although the Dow traded positive today, it has yet to confirm that there is any major change of investor sentiment from the current downtrend. However, today's spinning tops signal in the Dow, which used the 34 EMA as a support level, allows for a more accurate assessment of what might be occurring in investor sentiment. Positive trading would imply the uptrending channel is maintaining its integrity. A lower open would illustrate the continuation of the downtrend after the evening star signal. The analysis of the trend becomes relatively simple knowing what should occur after specific candlestick formations.

The strength of an uptrend or a downtrend is based upon the confirmation of a signal. FFIV clearly demonstrated a strong downtrend was in progress after a bearish kicker signal occurred moving prices down through the T line. A bullish kicker signal requires confirmation. SGH kicker recommendation today did not execute based upon the lower open, indicating the Bulls were not following through. This simple observation keeps the candlestick investor from committing funds to a trade that does not have high probabilities are working successfully. The candlestick investor has the advantage of knowing what should occur after a candlestick reversal signal based upon hundreds of years of successful observation and profitable trades. The 12 major candlestick signals demonstrate a change of investor sentiment. Most people new to candlestick's want to know which ones are the strongest. These 12 are the strongest and most consistent out of the 50 or 60 candlestick signals. But there is even a more powerful evaluation of strong reversals based upon simple combinations of the signals and patterns. These work effectively because human nature works the same way time after time.

 

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

Good Investing,

The Candlestick Forum Team


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