Although the markets are trading positive, the expected profit-taking of yesterday’s big positive moves is occurring in many stock prices. This usually occurs early in the day. It will be important to see the indexes remain above the T-line Today. The change of investor sentiment in these market conditions are based upon tariff negotiations, making the change of a market trend relatively volatile on a day to day basis.

After yesterday’s Doji in the oversold area of the Dow, Today’s gap up/best friend signal has brought the Dow right back up to the T-line. The S&P 500 is also forming a best friend signal and still has some more upside to get to the T-line. The NASDAQ is currently trading near yesterday’s open after gapping up. This could be the bottom reversal signal. However, “could” is the qualifying word, the T-line still needs to be breached to indicate the confirming change of investor sentiment. It will be important to see how the indexes close Today but the magnitude of the buying at least reveals bullish sentiment starting at these levels. Short positions need to be scrutinized today to see if they are creating bullish signals in the oversold area, ready to be closed out.

The markets are in the oversold condition and now starting to show some buying sentiment. Numerous stocks are starting to show potential reversal signals but bullish confirmation is still required, especially seeing trading closing the indexes as well as individual stocks backup above the T-line. Continue to be predominantly short but be more attentive for buy signals in downtrending stocks. With the market indexes still trading below the T-line, be cautious on buying bullish positions.

Why is the T-line so effective? Candlestick signals and patterns create graphic depictions of what is occurring in investor sentiment. The T-line produces a high probability support and resistance level of overall investor sentiment, a confirmation of the candlestick signals.

Although the market indexes opened positive Today, currently they are not showing any follow-through. This is creating indecisive candles, indicating there is no dramatic reversal of the trend. Yesterday, the NASDAQ and the S&P 500 showed a possible bounce off the 200 day moving average, making for the possibility of a reversal/bounce from that level based upon seeing good bullish strength today. Currently, the markets are not demonstrating any major strength. The analysis of each individual stock chart should be the top criteria until there is a definite reversal in the market indexes.

The Mueller report Today did not help the market that was already continuing to move in its current direction. The 200 day moving average still appears to be the potential target for the NASDAQ and the S&P 500. The Dow gapped down through the support levels creating the prospects of a bearish J-hook wave three to the downside. Any short positions added at these levels should be done with a quick trade prospect if the markets start bouncing from here. If already predominantly short, the best strategy at this point is to just sit and be prepared to take profits upon the first signs of a bullish signal.

Although the markets opened positive Today, the current trading reveals the downtrend probabilities are still intact, with the indexes continuing to trade below the T-line. The transportation index indicates the most bearish trend movement. The trading strategy is very simple. Stay predominantly short until the appearance of candlestick buy signals and a close backup above the T-line. There are a couple of bullish kicker signals that warrant trading long but the overall bias of the portfolio should still be to the short side.

The indecisive nature of the market is still being demonstrated in today’s market trading. The major indexes, trading slightly lower, are trading above where they opened or trading as Doji’s so far Today.

The markets still can’t make up their minds, illustrated by the trading above the T-line and back below the T-line, then backup above. This clearly indicates there is no major consensus by the Bulls or the Bears. Both long and short positions are still trading profitably off candlestick signals. Until there is a definite signal confirmed by a close above or below the T-line, have both long and short positions in the portfolio. Obviously, this is a very schizophrenic market to trade.

Candlestick analysis provides a high probability trading platform when utilizing the information built into each signal and pattern with confirming indicators. Friday, after a potential reversal signal in the indexes, the uptrend was in the process of confirming but for one final indicator, the T-line. After trading above the T-line most of the day, the closing levels of Friday brought the indexes back down below the T-line. This caused a major question about the uptrend, due to the T line rule. The T-line rule merely states that a downtrend has reversed based upon a candlestick buy signal and a close above the T-line. When the indexes did not close above the T line on Friday, a very simple assumption was created. The uptrend was still in question. The probabilities of the indexes closing below the T-line provides a logical strategy for the candlestick investor. Short positions should not be closed out until the final confirmation, the market indexes closing above the T-line.

The indexes forming a Doji going into the close of Friday, prepared candlestick investors to be ready to short positions on a lower open Monday. A lower open would also indicate the uptrend was not in progress, failing at the T line area. Knowing the direction of the overall market based upon how the premarket futures indicate the market will open after a candlestick signal keeps investors from entering positions that will not be confirming, such as long positions in today’s trading, and directing them to short positions that are confirming. This provides a constant common sense strategy to allow investors to enter appropriate trades and keep them from getting into trades that are not confirming.

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

Good Investing,

The Candlestick Forum Team