Stock Market Cycles Analyzed With Candlestick Signals
Stock market cycles are the inherent results of investor sentiment. Stock market cycles occur due to investor confidence building up and investor confidence waning. Prices do not change because of the fundamentals. Prices change based on investor perception of fundamentals. Candlestick signals are excellent analytical tools for projecting the tops and bottoms of stock market cycles.
The signals produce an immense advantage in trend analysis. Stock market cycles, when evaluated properly, produce the opportunity to make extraordinary profits from the markets. Utilizing Candlestick signals at major support and resistance levels increases the probabilities of identifying the tops and bottoms of stock market cycles.
Candlestick signals immediately identify the results of investor sentiment at important technical levels. Some of the strongest support and resistance indicators are major moving averages. Learning to use the 50 day moving average and the 200 day moving average dramatically enhances trend analysis results. These moving averages are important because they are utilized by the major money managers.
Market Direction - The Dow and the S&P 500 have pulled back to the 50 day moving average and the 200 day moving average. What does this indicate as far as trend analysis? A common rule of technical analysis is that once an important technical level is breached, prices will come back and test that level. Applying this knowledge simplifies the analysis of what the next trend move might be.
The S&P 500 indicated a Doji forming right on the 50 day moving average. Although the Dow did not show a major reversal signal, it also showed strength right on the 50 day moving average. This analysis, with the analysis of the signal formation in the NASDAQ, provides more evidence of what investors are doing. The NASDAQ formed a Bullish Harami. This, occurring when seeing support at the moving averages in the other indexes, can now be assessed as buying starting to come back into the markets.
The NASDAQ has been showing buy signals as it has declined toward the 50 day moving average. There have been two Bullish Harami's and a Hammer signal followed by a Bullish Engulfing signal, in the past few days. Wednesday revealed another bullish Harami as the trend has pulled back very close to the 50 day moving average. These are all indications that the downtrend has been slow and controlled.
Sector Play - One of the strongest signals in Candlestick analysis is the Kicker signal. The appearance of a Kicker signal occurring right at a major moving average is an extremely strong reversal indicator.
The Semiconductor Equipment and Materials sector formed a Kicker signal on Wednesday right at the 50 day moving average. What does this indicate?
To the Candlestick investor, this should indicate that the best stock trades should be showing up in a sector that has indicated an extremely strong reversal. If the sector index reveals a strong reversal, individual stocks in that sector should be producing some very strong signals. Finding strong Candlestick signals from a sector indicator can be applied to the strong stocks in the sector.
Notice in the Applied Materials Inc. chart that it also produced a Kicker signal at the 50 day moving average. This becomes strong criteria for entering a trade.
Any signal moving off of a moving average, when stochastics are in an oversold condition, becomes an extremely high probability trade opportunity. The moving average, that is acting as a support level