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March 4th Market Direction

Today's trading produced a very strong reversal signal in the Dow, a bearish left/right combo. A bearish left right combo is a Doji followed by a bearish engulfing signal. This produces strong evidence that the Bears have now taken control. Add this signal to the analysis that last week the Dow performed a shooting star/Doji after gapping up in the overbought condition. The combination of these two strong sell signals produce good evidence the Bears are now taking control. Although the NASDAQ closed above the T line, it to formed a bearish left/right combo, at the same level a gap up in the overbought condition occurred last week. Knowing the probabilities of selling occurring after the signals allows the candlestick investor to be prepared to start adding short positions to the portfolio.

When the market conditions are well into the overbought condition, candlestick reversal signals become much more relevant. Just the suspicion that sell signals are starting to take over allows investors to anticipate adding short positions to the portfolio before a confirming sell signal occurs. TSLA is a good example of utilizing a strong sell signal at the appropriate conditions of a trend. Visually recognizing that the overall market conditions are starting to get tentative for the continuation of a bullish trend, adding short positions that are already exhibiting strong sell signals makes the profitability of the portfolio to remain strong even during the overall market reversal. The benefit candlestick investors have for positioning their portfolio is recognizing when a shift is starting to come in the overall market trend. Having a portfolio oriented to the bullish side and then start moving to the bearish side does not happen all at one time. Changes of investor sentiment can be seen in the overall market trends as well as individual stock positions, making the conversion from being predominantly bullish to predominantly bearish a smooth transaction.

 

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

Good Investing,

The Candlestick Forum Team


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