Using Moving Averages Makes A Trend Target Very Easy To SeeMarket Direction - Last week provided an opportunity for the market to head up after we witnessed a very strong day following a Harami. The Hanging Man of the previous Friday, followed by a Bearish Engulfing Pattern, revealed that the Bulls did not have very much strength left in the rally. Wednesday's gap-down and further selling through the 50-day moving average definitely indicated that the sellers were back in force. The gap-down on Wednesday morning was the logical indication that the sellers were pushing down the market with some vigor.
By the end of Friday, the NASDAQ index was right back at the same level as when the rally first started in late March. This will become an important pivot point. Watch for support at that level. The stochastics are now falling back to the oversold area. The NASDAQ produced a Bullish Harami right on the 200-day moving average. It showed confirmation on Tuesday while the stochastics were now turning up.
This would suggest the market would be trying to form a Double Bottom. The advantage of the candlestick signals is that they tell us what the buyers and sellers are going to do at that support level. Conversely, a bearish candle that breaks that level would reveal that the markets are heading much lower.
The Dow is also nearing a descending trend line. The stochastics are going into the oversold area. A Hammer, a Doji, or a Bullish Engulfing Pattern is needed in this area to stop the downtrend; the downtrend that started after a Doji, a Spinning Top, and a Shooting Star. The oversold indexes could produce a bounce back up to the 50-day moving average.
Tuesday indicated that the buyers were around, confirming the signals of Monday. The Dow actually went to the 50-day moving average today and the stochastics appear to have enough strength to test it again. The NASDAQ should reach the same target but it should take a few more days to get there.
Moving averages, excellent support and resistant targets - Understanding the Candlestick signals provides excellent opportunities to get into a trending position at the right time. There are signals to indicate a strong move in one direction or the other. However, the signals do not always indicate a target. That can be easily done by knowing other technical methods. Trend lines, congestion areas, and Fibonnacci numbers are just a few of the common technical analytics that can at least give you a target for where a trend might go. The advantage of candlestick signals and candlestick analysis is that while others are anticipating what might happen at a technical point, the candlesticks reveal what is actually happening at those points.
This advantage provides an opportunity to get better executions on trades.
As can be seen in the SSTI chart, the Doji and the Spinning Top being confirmed the next day produced an excellent short situation. But where was the potential target? The 50-day moving average was a logical target and it was occurring almost at the 61.8% level of the Fibonacci number. Does the sell signal indicate how far down the stock will move? No. But there are levels down there that would probably be watched by other technical traders. As we have seen, when it did reach that 50-day moving average, we saw a Spinning Top and a Long Legged Doji. The stochastics were now in the oversold condition ready to curl up. This now reveals strong indications that this is the bottom. It is now time to start taking profits.
At the same time that the Spinning Top and the Doji at the bottom alert us to start covering the short position, they also act as a potential buy signal. The strong day on Tuesday indicates the investor sentiment has reversed. The same information is revealed in the AUO chart. This is not rocket science. This is simple analysis of what the candlestick signals are indicating at important technical levels. Whether trying to analyze the direction of the markets or an individual stock, the signals provide the extra advantage to move in out of positions at the proper time.