The T line rule remains in effect! Until you see a candlestick reversal signal and a close above the T line, assume the downtrend remains in progress. That is why it was important to see what the premarket futures are indicating today. Stay predominately short. Any long positions require convincing bullish evidence to stay long.

Although the Dow is trading much higher, the other indexes do not appear to have the same follow-through strength. The reminder remains that as long as the indexes continue to trade below the T line, bearish sentiment is still in control. Any entry into long positions require confirmation of the bulls maintaining the position going into the close. Retail stocks continue their downtrend.

Assume the downtrend remains in progress as long as the indexes continue to trade below the T line. Stay predominately short until there is evidence of a strong candlestick reversal signals in all the indexes.

Yesterday the Dow formed a McMuffin signal, closing above the T line, a very strong reversal signal. So what was the next requirement? Bullish confirmation! Obviously that has not occurred. What is the current trend analysis? The downtrend resistance level has not been breached and if the indexes close at the low end of there trading range, they will be closing back below the T line. This indicates the downtrend remains in progress.

The markets remain in a tentative state. The bullish reversal signals of Friday still require the indexes to close above the T line. Until that happens, any new positions added to the portfolio should have very close stops. The T line is a very effective indicator of when investor sentiment has changed.

Option profit-taking is much better analyzed using simple candlestick analysis rules. Option profit-taking should occur when the probabilities of your option trade is starting to diminish. When the markets are in oversold conditions and the indexes start revealing potential reversal signals, the candlestick reversal signals revealed an individual stock moves become more enhanced. The Dow formed a Doji in the oversold area today. The NASDAQ formed a meeting line signal, a bullish potential reversal. That becomes the first inclination to watch for reversal signals in individual stock positions. A bullish engulfing signal occurring in oversold condition of a stock price and the market start to show some bullish signs, whether a full-scale reversal or merely a bounce back up to the T line, produces better probabilities for taking profits in put trades. A major advantage of candlestick signals is allowing for the identification of very strong reversals. The strongest individual candlestick signal is the kicker signal. It has three variations. Join us Saturday, May 12 for a Candlestick Forum Mini Spotlight training on identifying and utilizing the kicker signal. Visually recognizing this signal and knowing the expected results will greatly improve your trading profitability.

Chat session tonight at 8 PM ET. Click here to register.

Good Investing,

Stephen Bigalow

Once again it will be very important to see how the markets close today. Likely there will be some short covering but that is what causes the positive trading early in the day. With the indexes continuing to trade below the T line, a market reversal will require a very strong bullish signal.

The early-morning positive trading requires strength going into the end of the day to indicate any change of investor sentiment. The indexes still trading below the T line imply the downtrend is in progress but be prepared for a potential bounce back up to the T line area.