The nature of the overall market trend can sometimes be confusing based upon the day to day trading. Today’s trading formed a bearish Harami, giving the possible indication the buying of Friday had come to an end. Fortunately, for the candlestick investor, the addition of the T-line into the analysis allows for better assessments as to what the overall investor sentiment is doing. The fact that the market indexes continue to trade above the T-line dramatically improves the probabilities the bullish sentiment of the market is back in progress. The combination of candlestick signals and the use of the T-line, the T-line being a natural support and resistance level of human nature, produces a very powerful and accurate evaluation of what a market/price trend will do. The use of the T-line in conjunction with candlestick signals dramatically reduces the prospects of being whipsawed in and out of a position.

A major advantage of candlestick analysis is being able to identify which stocks/sectors are working the strongest or weakest during a market trend. As illustrated in today’s trading, the charts/ETFs related to the biotech sector illustrated money coming into that sector. This allows for pinpointing the strong stocks in that sector. With the supply of over 7800 stock trading entities, candlestick charting techniques allow for identifying very quickly which stocks have the best upside potential. Even when a market trend is in an upward direction, Candlestick investors gain a huge advantages by surpassing merely uptrending stocks during an uptrend but identifying which stocks have the most strongest upside potential. Currently, the assumption is that the market is back in an uptrend now that is trading above the T line. Simple candlestick scanning techniques reveal the biotech sector is gaining inordinate strength. Logic dictates having a few biotech positions in the portfolio.

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The indecisive trend of the markets is more clearly revealed because of the trading formations on a daily basis. Adding the factor of the market indexes trading indecisively below the T line provides a better probability trading strategy for investors. Without a definite direction of the market, the portfolio strategy becomes more oriented toward having both long and short positions in the portfolio. This strategy can be maintained until there is a definite trend indication, such as a bullish candlestick signal and a close backup above the T line, showing the bullish uptrend is back in progress. Fortunately, with simple candlestick scanning techniques, it is very easy to identify strong bullish signals and patterns as well as strong bearish signals and patterns. Logic dictates that no matter which direction the market is moving or not moving, candlestick scanning techniques will always find more bullish and bearish trade set ups than most investors will be able to handle. This produces the opportunity for not only finding good trades, but being able to cultivate the best of those good trades.

Very simple trend analysis techniques allows investors to participate in price movements based upon candlestick signals confirming an existing trend. For example, shorting BYND is based upon recognizing the downtrend of this stock price has been in progress for months. Additionally, witnessing candlestick sell signals at obvious resistance levels reveals investor sentiment is still continuing the downtrend. The same is true for analyzing bullish trends. The T line becomes a very important factor for recognizing the signals/patterns that are going to continue an uptrending move.

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Logical trend assessments can be made when witnessing continuity in all the indexes. Today, the Dow, S&P 500, and the NASDAQ all had the same candlestick indications. They each created sell and closed below the T-line. On days when one index is up and another may be down, the common sense analysis is that there has not been any change of investor sentiment, the trend will usually continue. However, on days when all the indexes are moving in the same direction and as seen in today’s trading, closing below the T line, it is much more evident that there has been a general change of investor sentiment across-the-board. The magnitude of the sell signals today also indicated there had been a change of investor sentiment. This does not necessarily indicate a major reversal of the market indexes but at least it shows there is a higher probability of a pullback/consolidation stage setting up in the markets. This analysis allows option traders to make a much more decisive decision-making process when evaluating individual stock positions that might not be showing excessive weakness, but it does indicate the time factor may be about to reduce the time premium in specific positions.

The T line remains a very strong trend indicator. Individual stock positions that may have shown weakness and close below the T line now have the improved prospects of pulling back. They become positions that may be closed. When the market shows weakness and individual stock positions continue to trade above the T line, this becomes a clear indication that those bullish positions are not being affected by the market.

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The Candlestick Forum Team

The anticipation of the markets continuing higher was illustrated by the indecisive candlestick formations supporting on the T-line. This simple visual analysis allows a candlestick investor to assess the strength of the selling during a pullback/downtrend. Today’s positive trading confirmed the T-line was going to continue to act as a support and illustrated J-hook patterns in the major indexes. The J-hook pattern implies more upside, adding additional evidence the uptrend remains in progress. Because the candlestick signals and patterns are the accumulative buying and selling decisions of investors, having the reason for why the markets are trading higher is not required when doing candlestick analysis. Identifying the reoccurring patterns and price movements is all a candlestick investor needs to interpret. The lack of trade agreements, impeachment hearings, Washington indictments, are not affecting investor decisions. The importance of candlestick analysis is merely evaluating that investors are currently buying.

Price trend analysis can be accurately enhanced by knowing what each individual candlestick signal is revealing during the development of a price pattern. Additionally, the appearance of individual candlestick signals at important support and resistance levels merely reveals to the candlestick investor what the major decisions were made at those levels. As illustrated in our recommendation on ZM, a trend kicker signal, a very strong bullish signal, occurred right at a frypan bottom breakout level which coincided with a 50 day moving average. Identifying a combination of candlestick analysis factors dramatically improves the probabilities of being in the correct direction as well as a strong price move. Analyzing a price move after a breakout situation is much more accurately evaluated based upon simple trend analysis incorporating the T line. Having the ability to analyze the overall market direction dramatically improves the probabilities of being in strong bullish candlestick patterns. The magnitude of the moves of a pattern breakout is much greater than merely holding uptrending stocks during an uptrend.

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

Good Investing,

The Candlestick Forum Team