Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

Monday 5/29/17. Market Monday: The Week Ahead

• My Prediction
• A Brief Look Back
• Options Expiration
• Swing and Position Traders: Chart Pattern Indicator
• Swing Traders: Pivot Points
• Consecutive Price Trends
• Earnings, Chart Patterns & Industries

My Prediction

I show the Dow utilities on the daily scale.

Buried in the OHLC price chart is an ascending triangle. I show it highlighted in red.

It broke out downward, which ascending triangles do 36% of the time, according to my book, Chart Patterns: After the Buy.

I show a picture of the book on the left in case you want to buy a copy and catch up with the rest of the trading community.

Anyway, this triangle busted, meaning it reversed direction and closed above the top of the triangle.

The same book will tell you that a downward breakout from an ascending triangle busts 44% of the time in stocks on the daily charts. If they single bust (breakout downward, reverse, and keep rising), a perfect trade, traded enough, will average 49%. Wow.

Don't expect the index to rise that far, of course. It could rise farther.

Have a good holiday weekend. I'll catch you on the far side. I'll be working on my giraffe, a wooden sculpture with a fat torso, very long neck (about 30") and modest sized-ears. I'll post a pic of it on my facebook account, like I do most personal stuff, when it's done.

A Brief Look Back

The following is a brief review of how the markets performed over time. The numbers refer to the close-to-close move in the Dow industrials.

For the Week...

Year to Date...

Options Expiration

No options expire this week.

Swing and Position Traders: Chart Pattern Indicator

As of 05/26/2017, the CPI had:

The chart pattern indicator is bullish with 2 of 3 half triangles showing (). Additional triangles are a measure of strength with solid triangles meaning a more reliable signal than half triangles.

Swing Traders: Pivot Points

The following is based on an SFO article in December 2004 by John Seekinger, titled, "Take a two-dimensional approach." He offers these tips.

• Seekinger doesn't look at the range of S2 to R2 as support and resistance levels. Rather, he considers them oversold (S) and overbought (R) areas.
• S2 to R2 range of values across daily, weekly, and monthly periods: If two values are close together then they lend more significance to the area.
• If the market trends on day 1, the odds rise tremendously that the market will be range bound between daily S1 and daily R1 the next day.
• In a quiet market when traders are waiting for an important earnings announcement or economic report, look for daily R1 and S1 levels to hold and for the market to return to the daily pivot.
• A move outside of daily R1 or S1 usually does not mean a breakout.
• The odds suggest that the entire week's price action will remain between weekly R2 and S2.
• Avoid going long when the market moves above weekly R2 (it's overbought) and avoid going short when price moves below weekly S2 (oversold).
• Consider going short at weekly R1 or long at weekly S1 with a profit objective of the weekly pivot.
• Consider going long at weekly S2 or short at weekly R2 with a profit objective of weekly S1 or R1, respectively.

Here are the formulas:

Consecutive Price Trends

How long can an index close higher (or lower) each day? The adjacent table shows how often consecutive up or down closes occur in the indices, based on the most recent trend of closes.

Low percentages suggest the market is overdue to turn (think of it as the likelihood that next week or next month will continue the trend, based on historical performance). Values of 50% mean random, so most percentages will be lower.

The analysis uses data going back 10 years for weekly percentages and 25 years for monthly percentages (or the start of data, whichever is more recent). Any unchanged closing price is interpreted as the end of the string of consecutive up or down closes.

Earnings, Chart Patterns & Industries

Earnings season is either underway or should be starting soon. The sessions could be more volatile.

Large numbers of bullish or bearish chart patterns can signal short- to intermediate-term market trends (many bullish chart patterns can mean an uptrend will continue, for example). However, please realize that the short-term price trend could have changed since the pattern was discovered (this is especially true of pipe tops or bottoms, which are weekly patterns).

The 10 types of most frequently appearing chart patterns in the stocks, indices, and long-only exchange traded funds I follow during the last month are shown in the adjacent table.

The industries I follow were the best (rank 1) and worst performing.

-- Thomas Bulkowski

Friday 5/26/17. Pattern Trading Setups for the Weekend.

You can find setups based on a Fibonacci retrace by clicking on the link.

Click the link for a list of symbols from the table.

The following patterns were found manually, so the results may differ from those found using Patternz.

There were 10 patterns found this week (excluding pipe bottoms; pipe tops and bottoms are found looking back 2 weeks) out of 602 stocks searched, or 1.7%. Based on the percentage, the stock market is trending since few consolidation patterns appear.

Excluding ETFs, there were 4 bullish chart patterns this week and 4 bearish ones with any remaining (2) being undecided. The ratio of bullish to bearish patterns suggests the market is hinting of a coming bearish (down) turn.

In the table below, the red and green colors are based on the historical breakout direction for the associated chart pattern. If a high and tight flag appears, the start and end dates highlight the flagpole only and not the flag.

More...

-- Thomas Bulkowski

Weekly screen for chart patterns ending between 05/18/2017 and 05/25/2017. Many may be still in development. If no securities appear, then I have not identified any new patterns.

Industry: Semiconductor

WARNING: This industry is within the top 7 that Dead-cat bounce often.

Industry RS rank: 3 out of 56

Stock RS rank: 25 out of 594

5/25/17 close: $76.79

1 Month avg volatility: $2.09. Volatility stop (for upward breakout): $72.26 or 5.9% below the close.

Change YTD: 40.26%

Volume: 359,000 shares. 3 month avg: 434,757 shares.

Since 2009 bear market, the best buy day (fewest up closes) is Friday, and best sell day (most up closes) is Wednesday.

 

Chart pattern: Channel from 04/29/2016 to 05/25/2017

Industry: Food Processing

Industry RS rank: 38 out of 56

Stock RS rank: 85 out of 594

5/25/17 close: $83.22

1 Month avg volatility: $2.27. Volatility stop (for upward breakout): $76.90 or 7.6% below the close.

Change YTD: 15.20%

Volume: 2,989,200 shares. 3 month avg: 1,703,466 shares.

Since 2009 bear market, the best buy day (fewest up closes) is Monday, and best sell day (most up closes) is Friday.

 

Chart pattern: Horn bottom reversal pattern from 05/01/2017 to 05/15/2017

Breakout is upward 100% of the time.

Average rise: 35%.

Break-even failure rate: 9%.

Throwbacks occur 29% of the time.

Price hits measure rule target 76% of the time.

Industry: Apparel

Industry RS rank: 56 out of 56

Stock RS rank: 510 out of 594

5/25/17 close: $22.02

1 Month avg volatility: $0.68. Volatility stop (for downward breakout): $23.92 or 8.6% above the close.

Change YTD: -1.87%

Volume: 6,869,300 shares. 3 month avg: 5,813,078 shares.

Since 2009 bear market, the best buy day (fewest up closes) is Monday, and best sell day (most up closes) is Thursday.

 

Chart pattern: Broadening top, right-angled and ascending reversal pattern from 01/17/2017 to 05/25/2017

Breakout is downward 66% of the time.

Average decline: 15%.

Break-even failure rate: 20%.

Pullbacks occur 65% of the time.

Price hits measure rule target 32% of the time.

Industry: Advertising

Industry RS rank: 33 out of 56

Stock RS rank: 1 out of 594

5/25/17 close: $21.45

1 Month avg volatility: $0.41. Volatility stop (for upward breakout): $20.28 or 5.5% below the close.

Change YTD: 142.37%

Volume: 377,700 shares. 3 month avg: 30,762 shares.

This security may be thinly traded (less than 100k shares)!

Since 2009 bear market, the best buy day (fewest up closes) is Friday, and best sell day (most up closes) is Thursday.

 

Chart pattern: Flag, high and tight continuation pattern from 03/28/2017 to 05/25/2017

Breakout is upward 100% of the time.

Average rise: 69%.

Throwbacks occur 54% of the time.

Price hits measure rule target 90% of the time.

Industry: Electric Utility (West)

Industry RS rank: 12 out of 56

Stock RS rank: 214 out of 594

5/25/17 close: $86.31

1 Month avg volatility: $1.07. Volatility stop (for upward breakout): $83.39 or 3.4% below the close.

Change YTD: 7.15%

Volume: 125,600 shares. 3 month avg: 203,328 shares.

Since 2009 bear market, the best buy day (fewest up closes) is Wednesday, and best sell day (most up closes) is Tuesday.

 

Chart pattern: Triple bottom reversal pattern from 05/03/2017 to 05/19/2017

Breakout is upward 100% of the time.

Average rise: 37%.

Break-even failure rate: 4%.

Throwbacks occur 64% of the time.

Price hits measure rule target 64% of the time.

Industry: Medical Supplies

Industry RS rank: 2 out of 56

Stock RS rank: 67 out of 594

5/25/17 close: $14.65

1 Month avg volatility: $0.63. Volatility stop (for upward breakout): $13.23 or 9.7% below the close.

Change YTD: 12.26%

Volume: 93,700 shares. 3 month avg: 283,832 shares.

Since 2009 bear market, the best buy day (fewest up closes) is Wednesday, and best sell day (most up closes) is Thursday.

 

Chart pattern: Triangle, symmetrical continuation pattern from 05/09/2017 to 05/24/2017

Breakout is upward 54% of the time.

Average rise: 31%.

Break-even failure rate: 9%.

Throwbacks occur 37% of the time.

Price hits measure rule target 66% of the time.

Industry: Internet

WARNING: This industry is within the top 7 that Dead-cat bounce often.

Industry RS rank: 4 out of 56

Stock RS rank: 223 out of 594

5/25/17 close: $84.89

1 Month avg volatility: $1.74. Volatility stop (for downward breakout): $88.90 or 4.7% above the close.

Change YTD: 3.78%

Volume: 355,300 shares. 3 month avg: 375,692 shares.

Since 2009 bear market, the best buy day (fewest up closes) is Wednesday, and best sell day (most up closes) is Monday.

 

Chart pattern: Broadening top, right-angled and ascending reversal pattern from 02/16/2017 to 05/19/2017

Breakout is downward 66% of the time.

Average decline: 15%.

Break-even failure rate: 20%.

Pullbacks occur 65% of the time.

Price hits measure rule target 32% of the time.

Industry: Chemical (Diversified)

Industry RS rank: 30 out of 56

Stock RS rank: 197 out of 594

5/25/17 close: $116.53

1 Month avg volatility: $0.58. Volatility stop (for downward breakout): $117.73 or 1.0% above the close.

Change YTD: 10.76%

Volume: 831,400 shares. 3 month avg: 2,033,140 shares.

Since 2009 bear market, the best buy day (fewest up closes) is Monday, and best sell day (most up closes) is Tuesday.

 

Chart pattern: Triangle, descending reversal pattern from 04/21/2017 to 05/25/2017

Breakout is downward 64% of the time.

Average decline: 16%.

Break-even failure rate: 16%.

Pullbacks occur 54% of the time.

Price hits measure rule target 54% of the time.

Industry: Medical Supplies

Industry RS rank: 2 out of 56

Stock RS rank: 447 out of 594

5/25/17 close: $32.17

1 Month avg volatility: $0.53. Volatility stop (for downward breakout): $33.44 or 4.0% above the close.

Change YTD: -8.84%

Volume: 652,100 shares. 3 month avg: 689,768 shares.

Since 2009 bear market, the best buy day (fewest up closes) is Wednesday, and best sell day (most up closes) is Thursday.

 

Chart pattern: Triangle, descending reversal pattern from 05/09/2017 to 05/25/2017

Breakout is downward 64% of the time.

Average decline: 16%.

Break-even failure rate: 16%.

Pullbacks occur 54% of the time.

Price hits measure rule target 54% of the time.

Industry: Computer Software and Svcs

Industry RS rank: 10 out of 56

Stock RS rank: 509 out of 594

5/25/17 close: $117.64

1 Month avg volatility: $2.31. Volatility stop (for downward breakout): $123.99 or 5.4% above the close.

Change YTD: -5.93%

Volume: 1,237,300 shares. 3 month avg: 2,210,932 shares.

Since 2009 bear market, the best buy day (fewest up closes) is Thursday, and best sell day (most up closes) is Thursday.

 

Chart pattern: Diamond top reversal pattern from 05/05/2017 to 05/25/2017

WARNING: A dead-cat bounce occurred on 03/01/2017. There is a 26% chance that a 15% or higher decline will occur (or has occurred since then) by 05/31/2017 and a 38% chance by 08/30/2017.

Breakout is downward 69% of the time.

Average decline: 21%.

Break-even failure rate: 6%.

Pullbacks occur 57% of the time.

Price hits measure rule target 76% of the time.

Thursday 5/25/17. Intraday Market Direction: Nasdaq

Since I post this the night before, check how the futures are trading before market open. Large moves can affect the opening direction.

$ $ $

I show a picture of the Nasdaq composite on the 5-minute scale.

Highlighted in red is an ascending triangle. It looks suspiciously like the one we saw in the Dow two days ago. I drew the bottom of the pattern with a thin red line. It helps show that the breakout from this triangle was downward.

Then it busted, setting the stage for a strong rally.

However, being late in the trading session, only a portion of that rally appears on the chart. Meanwhile, the chart pattern indicator has flipped to bearish, erasing a bullish signal from yesterday.

So there you have it. The busted triangle suggests a strong rally will unfold, but the CPI has turned bearish. Maybe that's the difference between short- and long-term signals.

$ $ $

The following table shows where Fibonacci retrace values of the day's high-low range are plus pivot points, calculated on the Nasdaq composite, sorted by value. When several are near each other (small differences), the area might act as support or resistance.

-- Thomas Bulkowski

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.