October 7th Market Direction

The indecisive trading of today was not unexpected after the strong reversal of last week. The profit-taking, creating the indecisive Doji day Today was occurring at technical levels that were be in watched by all investors, the 50 day moving average. The Dow closed right on the 50 day moving average while the NASDAQ after trading higher started resisting and selling off at the 50 day moving average. The T-line remains a relevant indicator. The positive trading of last week improved bullish investor sentiment after the indexes bounced up with candlestick reversal signals at support levels such as the 200 day moving average. There is a trend channel being created in the indexes, implying a sideways motion in the markets. However, with support being shown at the low end of the trend channel, investor sentiment although moving from aggressively negative, is not dramatically bullish either. Because of where bullish and bearish signals have occurred over the past few months, it is much easier to graphically evaluate the lack of any major trend in the current market. Fortunately, the simplicity of candlestick scanning techniques allow for identifying the strongest bullish charts as well as bearish charts. These market conditions allow the candlestick investor to be making money by having both bullish and bearish positions in the portfolio.

The number of bullish chart setups has grown over the past few days of trading. This not only indicates a build up of investor confidence, it allows the candlestick investor to pinpoint the strongest potential trades. Currently, numerous frypan bottom patterns, cradle patterns, and McMuffin patterns are being formed. These strong bullish patterns allows for executing high probability profit trades even though the overall market trend remains in a sideways mode. The expectation of results from candlestick patterns dramatically improves the probabilities of being in a profitable trade as well as highly profitable trades. A McMuffin pattern,as demonstrated in our recommendation of TLRA, was based upon the expected results of that pattern set up. Simple candlestick analysis allows investors to identify which trades produce the highest probability results.

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

Good Investing,

The Candlestick Forum Team