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Stock Market Monitoring - How To Use Candlestick Signals

Where  does the market go from here? Didn't the Bullish Engulfing signal of Wednesday in the Dow tell us the bottom had formed? What did Friday's sell-off tell us? Stock market monitoring produces the answers when using Candlestick signals. Remember what the Candlestick signals represent. They are the visual depiction of investor sentiment. Stock market monitoring has the same analytical applications as individual stocks. The stock analysis with candlestick signals provide information on what direction the market will be moving with a relatively "high probability" factor.

Wednesday produced a Bullish Engulfing signal in the Dow chart. This followed the Bearish Engulfing signal of the previous day. These indicators become significant information when stock market monitoring. When will the bottom occur? The probabilities became relatively strong, when witnessing a Spinning Top, with an Inverted Hammer confirmation the next day, followed by a Bearish Engulfing signal, that the bottom is near. As mentioned in the last newsletter, the Bearish Engulfing signal, occurring when stochastics are in the oversold area, does not provide the same analysis as witnessing a Bearish Engulfing signal in overbought conditions. A Bearish Engulfing signal in an oversold condition is usually the last gasp selling. It becomes a signal to start watching for a “buy” signal.

The “buy” signal became fairly obvious with a 135 point bullish day in the Dow on Wednesday. All of these signals occurred when the stochastics were in the oversold condition. The bottom of the Bullish Engulfing signal started “almost” at the 200-day moving average, a logical support area. So with all this evidence that a bottom should have occurred, then what was the trading action on Friday?

Keep in mind, the Candlestick signals provide a stock market monitoring system that allows an investor to evaluate the probabilities of a trend reversal. The important word in this previous statement is “probabilities”. The formation of Candlestick “buy” signals, in the right conditions, give us a good idea of what "should" be happening to a trend. The advantage of using Candlestick signals is two-fold in stock market monitoring and individual stock analysis.

Witnessing the formation of Candlestick "buy" signals, over the past week of trading, produced a specific evaluation. It was time to start adding long positions to the portfolio. However, the selling in the Dow on Thursday and Friday did not conform to the evaluation. This now produces a new scenario in our stock market monitoring.

Buying positions after Candlestick buy signals occur require one simple element, the evidence that the buyers are still present. As seen on Thursday, the markets opened slightly lower. Consolidation is usually anticipated after a large up move the previous day. The fact that there were very few “buy” confirmations on Thursday keeps the Candlestick investor from over committing new funds in the long direction. However, that does not eliminate being in positions that were confirming that buyers were around in specific sectors.

The second benefit of Candlestick signals is that they reveal which sectors are being bought even though the rest of the market may be selling off. This week revealed strong buying coming into the oil stocks again and the mining stocks. Some good profits were made in those positions even though the rest the market sold off Thursday and Friday.


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