August 29th Market Wrap-Up

Yesterday the Dow formed a bullish engulfing signal that bounced off the 200 day moving average and closed above the T line. Today’s gap up further confirmed the potential of a strong bullish reversal. The other major indexes showed bullish trading also. However, there is one visual piece of evidence that still needs to be addressed. All the indexes are still trading in an observable sideways trend. The Dow provides the most bullish characteristics as it is nudging the top of that sideways trend that has been created in the markets over the past month. Why is this an important observation? Because prices/trends move based upon investor sentiment. The nature of the market for the past 30 days has been reactionary to positive or negative tweet’s or announcements, producing drastic whipsaw reactions. Until investor sentiment shows a change, meaning a breakout of the current trading channel, it can still be assumed that any news related event/tweet still produce a whipsaw all affect. The strong bullish candle signals created in the indexes indicated the lower edge of the trading range was acting as support. This makes the trading strategy very simple. A breakout to the upside after the strong bullish signals have appeared over the past two trading days would indicate a new dynamic in investor sentiment, producing a good bullish trend indication. A failure to breakout, especially revealing in the Dow chart, would indicate investor sentiment is still in an indecisive mode.

What is the best trading strategy for this market analysis? There are very strong bullish signals occurring in individual stocks. Adding to the bullish positioning of a portfolio is viable but with caution. Any signs of the market indexes moving back down into the trading range or continuing in the sideways trading range would indicate market conditions still warrant sitting on the sidelines. There are a number of very strong bullish charts that can be bought based upon further bullish confirmation in the overall market trend. NVDA, for example, created a very strong MorningStar signal off the 200 day moving average. The Doji followed by a gap up from that level, the best friend signal, and closing well above the 50 day moving average and the T line, makes the prospects of a J-hook pattern set up extremely likely. It is this type of strength in a bullish signal that permits a candlestick investor to start adding to long positions based upon the lack of any strong selling indications in the overall market. Simple logic indicates that candlestick signals that are showing strong bullish potential in conjunction with a general market index breakout allows for entering trades well before other technical trading methods start confirming a trend.

Chat session tonight at 8 PM ET with Stephen Bigalow. saferedirecturl=””>Click here to register. 

Good Investing,

The Candlestick Forum Team