August 12th Market Direction

What is the buying of last week in the market indexes a bounce or a full-scale reversal? The candlestick signal, the Harami, make that much more easy to assess. Friday’s trading created a bearish Harami and all the major indexes. What was more telling was the fact that those bearish Harami’s occurred right at obvious resistance levels, the T line and/or the 50 day moving average. That made the analysis of whether the markets had a bounce or a full-scale reversal much more identifiable. Today’s premarket futures/lower trading confirmed the bearish Harami signal. The failure to get up through the resistance levels following a candlestick reversal signal made it much more clear that the bounce came up to the resistance levels and continue to sell off from there. Knowing what the results of each candlestick signal illustrates allows the candlestick investor to be ready to move in and out of positions with much greater speed and accuracy.

The T-line is a very relevant trend indicator. As indicated in our short recommendation on TX, the lack of any buy signal and the continued trading below the T-line provided a very simple trading strategy, stay short until the appearance of a buy signal and a close backup above the T-line. Note how a bearish left/right combo signal, a Doji followed by a bearish engulfing signal, that formed in mid July started the downtrend. The strength of a left/right combo provides very high probabilities of a reversal in spite of the overall market direction. The recommendation of AERI was based upon a bullish left/right signal up through the T-line showing a dramatic change of investor sentiment/trend. Utilizing the information built into candlestick signals allows investors to see immediately what is occurring in investor sentiment and what signals/patterns will develop from that level.

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

Good Investing,

The Candlestick Forum Team