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September 17th Market Direction

Today's lower trading was somewhat expected based upon the Doji's that formed in the indexes on Friday. The simple Doji rule, prices will move in the direction of how they open after a Doji, was clearly illustrated on today's open. The markets had a hard time showing any bullish sentiment during today's trading. Is this merely profit-taking or a trend reversal? That is more easily evaluated by understanding what occurs in human nature, which is better illustrated with candlestick charts. The prospects of an overall trend reversal was more apparent today based upon a very simple factor. On most profit-taking days during a trend, there will usually be at least one index trading positive when the others are trading lower. This indicates money shifting from sector to sector versus coming out of the market. Today's trading at an added bearish feature. All the indexes traded lower, with the S&P 500 and the NASDAQ closing back below the T line. The consensus of selling is a stronger indication bearish sentiment is starting to take control of the market. For the candlestick investor, this makes for very simple strategy. Any long positions that are start to show weakness, a sell signal and/or a close below the T line should be closed. The addition of a few more short positions in the portfolio is the prudent strategy.

When the candlestick scans reveal better looking short trades than long trades, that also becomes visual evidence the Bears are starting to take control. Identifying good short trades is not a one day process. Good short positions will be identified by strong sell signals that also become more relevant by witnessing what the previous price movement has been in specific stocks. A breach of the T line becomes a very high probability analytical factor demonstrating when investor sentiment is starting to take control. This allows the candlestick investor to be establishing short positions well before the hard selling begins.




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Good Investing,

The Candlestick Forum Team

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