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Stock Market Analysis

Stock market analysis is made easier when you understand what the candlestick signals are telling you. This is evident in the DOW and the NASDAQ indexes for the past couple of weeks. The DOW has traded relatively flat during the past couple of weeks. There were no signals, either on the buy side or the sell side during that time. During the same time frame, the NASDAQ traded relatively flat using the 50-day moving average as the support area. Stochastics flattened and have recently turned back up. Understanding what the signals, and/or the lack of signals, tell us provides a platform for accurate stock market analysis.



Market Direction – Using the evaluation of what the market is telling us creates the opportunity to be positioned correctly. The flat trading over the past two weeks can be used to project the next move. First, the signals, being fairly accurate indicators of a trend reversal, also act as a lack of trend change indicator when they do not appear. For the past two weeks there have not been any major signal patterns to indicate a reversal of the bullish signals appearing in late May. What could have been a major reversal the first three days of June was quickly negated. Since that time no significant signals occurred. For stock market analysis purposes, this indicates that the existing trend is still in effect. In this case, the trend has been sideways and has yet to alter the sideways action until today’s trading action.

Can money be made in a sideways market? Definitely! That is when the attributes of candlestick signals stand out. A sideways market may not produce the oomph that it created when a trend is in place but the signals will point out where the investment funds are flowing. This factor alone allows the candlestick investor to participate in the active sectors when the market in general is not moving.

The lack of any major sell signals, indicating that the trend was still up, was confirmed. The strong bullish day on Wednesday moved prices to a new trading level. Although no new candlestick “buy” signal was present, the upward trend was now confirmed after a few weeks of consolidation. As seen in the NASDAQ chart, the bullish candle breached resistance levels that were obvious in trend line charting.

The major benefit of being able to analyze the stock market direction is being in predominately the right direction is regard to the positions in your portfolio when the market decides which direction it wants to move in a major fashion. Wednesday finally witnessed the trading to the long side that breached important technical levels.

The NASDAQ’s flat trading range ended just as the 50-day moving average and the 200-day moving average crossed.

The DOW moved higher after a definite Hammer formation that indicated that the sellers could not move prices down below the trading range of the past two weeks. The fact that they opened prices slightly higher and did not take too long to take prices up after the Hammer was a strong sign that the buyers were in control. Using the signals to tell us what the sentiment should be after a formation provides more confidence when establishing positions extensively to the long or short side in the portfolio.

The signals illustrate potentially good trades even without a trend. Use SCHN as an example. Two Bullish Engulfing signals appeared during the flat period. The second Bullish Engulfing signal becomes more convincing when the stochastics are near the oversold area. This trade produced over a 10% return in less than two weeks when the indexes were not moving.

CYBS is another trade that the signals revealed all the parameters of being a strong trade. Note that a Doji/Morning Star signal occurred right at the 50-day moving average. This provided a trade that had excellent potential in a market that did not show any trend one way or the other.

 

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