After a bearish Harami on Tuesday, and the markets gapping down below the T-line yesterday, produced higher probabilities that a downtrend was going to start again. However, today’s Bullish Engulfing Signal implied that the selling may not be as pronounced as expected. This makes tomorrow’s trend analysis relatively simple. With the indexes continuing to trade at or below the T-line, the probabilities remain that a downtrend is in progress. But with the bullish engulfing signal closing right at the T-line, a positive open in tomorrow’s trading would provide to relevant factors. The bullish engulfing signal was being confirmed and the trading was back up above the T-line, making a J-hook pattern set up. With the markets trading in an indecisive manner, the candlestick investor has a great advantage of being able to analyze much more accurately what is occurring in investor sentiment. Having the ability to anticipate the next trend movement allows for reorienting the bias/weight of the portfolio. A positive open would imply watching existing short positions to see if they need to be closed. A lower open would imply the T-line was still acting as a resistance level, long positions would need to be scrutinized more closely. When the markets are not moving in a definite direction, it is still feasible for having both long and short positions in the portfolio.
Identifying specific sectors becomes much easier when witnessing strong bullish or bearish signals. Today saw the oil companies picking up strength. The candlestick crude oil chart revealed a strong bounce to the upside. Witnessing numerous stocks having strong signals in the same sector is a better indication the sector is being bought across-the-board by many institutions. This makes individual stock charts in that sector a much higher probability trade. You are not witnessing a renegade bullish signal in a sector that is down trending. The probabilities are much greater that you may be buying a position in a sector that is picking up strength. This was evident in our recent recommendations in HAL and IMO. Bearish charts still revealed maintaining short positions in the cruise lines and numerous retail stocks. Having the ability to identify which sectors have the strongest bullish or bearish charts is enhanced with the use of the T line. Because candlestick analysis is the graphic depiction of human nature, the signals work very consistently. The probabilities are greatly improved when using the natural support and resistance level of the T line. Until there is a definite trend indication, maintain both long and short positions in the portfolio.
Chat session tonight at 8 PM ET. Click here to register.
Good investing,
The Candlestick Forum team.
