Which direction is the market heading to? This past week and a half has been difficult to analyze. Especially with the fluctuations from the daily stock market news. The uptrend seems to want to get going. Bad stock market news immediately changes the bullish sentiment. Everything looks bearish one day and then bullish the next. The new stock market news, economic reports, crude oil reserves, earnings reports, or a multitude of other financial stock market news today completely reverses the investor sentiment of Tuesday.

How do you evaluate the overall effects of the stock market news on the trend? Candlestick signals provide an immense amount of analytical information. A Candlestick signal has more effect on a trend than a non-Candlestick signal. Keeping that in mind, analyzing what is happening in a whipsaw market becomes a little easier.

The stock market news this week had some negative impact as we saw on Wednesday morning. However, the crude oil reserves information reversed the negative impact and produced a positive day by the end of the day. The fact that the Dow closed positive produces a completely different scenario than if the Dow had closed near the bottom of the trading range on Wednesday. The overriding factor of the current trend is still the large Bullish Engulfing signal that formed last week.

The Bullish Engulfing signal forming in the oversold condition of the stochastics has not been negated. Stochastics are now in an uptrend. Without evidence of a Candlestick “sell” signal since the Bullish Engulfing signal, the conclusion should remain that the uptrend remains intact, until a severe Candlestick "sell" signal appears.

Had the Dow closed more than halfway down the bullish candle of the Bullish Engulfing signal, it would have indicated that the bears had taken over control again. The fact that the Dow closed near the top of its trading range reveals that whatever stock market news came out on Wednesday, the Bulls were not deterred by the end of the day.

DOW

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Crude Oil Prices - The Crude Oil reserves were announced on Wednesday. The reserves had increased by 5 million barrels, much more than expected. The gap down in Crude Oil futures on Tuesday was indicative of the trend for Crude Oil prices. The Dark Cloud signal the previous day followed by a gap-down in price, below the 50 day moving average, gave the indication that the recent uptrend had reversed. The added selling pressure from Wednesday's Crude Oil reserves announcement confirmed the downtrend being in effect.

Crude Oil

Candlestick signals make it easy to analyze other factors that may be influencing the equity markets. The bearish sentiment in the market incorporates the fact that Crude Oil prices are staying above $50 a barrel, attempting to test all-time highs at $60 a barrel. When Crude Oil prices start heading lower, as seen this week, that is one indicator that takes pressure off the weakness of the equity indexes.

Being able to see “sell” signals confirm at a major moving average now allows the Candlestick investor to project where Crude Oil prices might go. In this case, where the 50 day moving average seems to have been a failure level, it might be anticipated that the 200 day moving average becomes the next target.

If Crude Oil prices fell to approximately the $47 range over the next week, then the equity markets should pick up strength with the fear of much higher oil prices dissipating.

This is not a difficult analysis. Being able to analyze any chart movement on a trading entity that might affect equities continues to put the probabilities in the favor of the Candlestick investor. Utilize the information built into Candlestick signals for your investment advantage.

Chat session - We will have an open chat session on Thursday night at 8 p.m. Eastern time, 7 p.m. Central time, 5:00 p.m. Pacific time. We will discuss how to analyze a market trend during a choppy period. All are welcome to join us.

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You should never be put in a position where you do not understand why trades are being made for your account. Whether those positions are being put on in your managed account, or a hedge fund, or your own personal trading, you should have a full understanding of whether those funds are being put in the right positions at the right time. The Candlestick signals applied with Candlestick analysis will become the education process for understanding how to maximize your potential returns in your own trading or being able to analyze whether a money manager has any concept of correctly timing the markets.

Good Investing!

- The Candlestick Forum Staff

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