Candlestick guru says S&P 500 still bullish long-term
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Candlestick guru says S&P 500 still bullish long-term
Charts light upward path for stocks
Candlestick guru says S&P 500 still bullish long-term
By Tomi Kilgore, CBS.MarketWatch.com
Last Update: 12:01 AM ET Oct. 4, 2004
NEW YORK (CBS.MW) -- October is the month of the most high-profile stock market declines. It is also known as a "bear killer," according to the Stock Trader's Almanac, as it marked the end of 11 bear markets since 1945.
So which October will show up in 2004?
If you just add up the number of bullish and bearish signs, bears win.
The S&P 500 Index ($SPX: news, chart, profile) closed out September at 1,115, snapping a five-quarter winning streak, amid a bevy of bearish intermediate- and near-term negative technical signals.
Throw into the mix the uncertainties of a presidential election, interest rate hikes and a decelerating economy, and the stock market's outlook is pretty bad.
But the markets are not a democracy.
The long-term outlook on the broad market barometer remains positive, according to Candlecharts.com President and founder Steve Nison, and well-above levels that would change that view. Given the underlying power of the long-term trend, the odds favor an October bounce.
Best known for bringing the Japanese candlestick charting technique to the West, Nison gives his views on the technical make-up of S&P 500. Read more about Nison and candlesticks.
The negative votes
Nison doesn't yet see any reason to step on the brakes, but he does see signs that suggest easing off the gas.
First, there is the appearance of a "bearish engulfing" reversal pattern.
On March 8, the day after the S&P 500 reached a 2-year high of 1,163, the index opened at 1,158, then closed down 11 points at 1,147. That engulfed the range of the prior day's open (1,149) and close (1,157).
For followers of candlestick charts, this implies a change in trend, as bears took all that bulls had to give, but still managed a vigorous counterattack.
Reversal patterns take on a bit more significance when they appear on cue at resistance. It suggests the bulls did not have the confidence they needed to take out resistance, and that bears were still able to exert some influence.
Nison noted that the index had coincidently just achieved its "measured move" target. If you take the difference between the bull-market breakout point (960) and the bear market low (769) of roughly 200 points and add it to the breakout point, you get a rough target of about 1,160.
In addition, that was a level of heavy resistance when the index fought to end the bear market in late-2001 to early-2002. It had topped out at 1,163 in November 2001, 1,174 in December, 1,177 in January 2002 and 1,174 in March 2002 before the renewed its downtrend.
Yet another negative is that the S&P 500 is sitting just below its 200-day simple moving average, a technical indicator that is seen by many as a bull/bear market barometer.
And since the market topped out in March, the index has actually fulfilled one of the necessary components of a bear market -- a pattern of lower highs and lower lows.
The index topped out at 1,151 in early April, 1,146 in late June and 1,132 in mid-September. Over the same time, the 500 hits lows of 1,087 in late March, 1,076 in early May and 1,062 in early August.
As long as this pattern continues, bears will be in intermediate-term control. But that's easier said than done.
'Morning star' brightens the view
One near-term positive for the index is strong support at the most recent low. What makes that level so significant, Nison said, is the appearance of not one, but two "morning star" reversal patterns.
A "morning star" is a three candle pattern consisting of a long black candle (the close is well below the open), followed by a small white or black candle (the open and close are close together) and then a long white candle (the close is well above the open).
It suggests bears had become indecisive, and subsequently lost control, at a time when bulls appeared to be most vulnerable.
The 500 slumped 9 points on Aug. 6, lost less than 1 point on Aug. 9 and then surged 10 points on Aug. 10.
On Aug. 12, the index fell 8 points, then fell about a half point on Aug. 13 before climbing 13 points on Aug. 16.
These are not ideal "morning stars," since there should be gaps between the second and first bodies, but Nison says the definitions do leave some room for interpretation. Given the clarity of the difference in the size of the bodies, the fact that there are gaps between the second and third bodies, and the ultimate resolution of the patterns, these can be considered reversals, and subsequently strong support.
There is also safety in numbers. The index hit intraday lows within 10 points of 1,060 seven times in seven sessions without ever breaking through.
If that support ever gives way, however, Nison doesn't see another significant support level until 960.
The long-term trend
Despite the overwhelming number of negative intermediate-term signs, bulls still win out.
Nison said the long-term outlook for the S&P 500 changed to bullish back in June 2003, when the rally through 960 "broke the back of the bear market" by confirming a triple bottom reversal pattern that the index spent about a year hammering out.
The index had hit lows of 776 in July 2002, 769 in October 2002 and 789 in March 2003, all while being contained by the August 2002 high of 965. The breakout ended a pattern of lower highs and lower lows that had been in place since March 2000.
Unless the index closes below 960 on a weekly basis, Nison said the bull market remains intact.
Candlestick guru says S&P 500 still bullish long-term
By Tomi Kilgore, CBS.MarketWatch.com
Last Update: 12:01 AM ET Oct. 4, 2004
NEW YORK (CBS.MW) -- October is the month of the most high-profile stock market declines. It is also known as a "bear killer," according to the Stock Trader's Almanac, as it marked the end of 11 bear markets since 1945.
So which October will show up in 2004?
If you just add up the number of bullish and bearish signs, bears win.
The S&P 500 Index ($SPX: news, chart, profile) closed out September at 1,115, snapping a five-quarter winning streak, amid a bevy of bearish intermediate- and near-term negative technical signals.
Throw into the mix the uncertainties of a presidential election, interest rate hikes and a decelerating economy, and the stock market's outlook is pretty bad.
But the markets are not a democracy.
The long-term outlook on the broad market barometer remains positive, according to Candlecharts.com President and founder Steve Nison, and well-above levels that would change that view. Given the underlying power of the long-term trend, the odds favor an October bounce.
Best known for bringing the Japanese candlestick charting technique to the West, Nison gives his views on the technical make-up of S&P 500. Read more about Nison and candlesticks.
The negative votes
Nison doesn't yet see any reason to step on the brakes, but he does see signs that suggest easing off the gas.
First, there is the appearance of a "bearish engulfing" reversal pattern.
On March 8, the day after the S&P 500 reached a 2-year high of 1,163, the index opened at 1,158, then closed down 11 points at 1,147. That engulfed the range of the prior day's open (1,149) and close (1,157).
For followers of candlestick charts, this implies a change in trend, as bears took all that bulls had to give, but still managed a vigorous counterattack.
Reversal patterns take on a bit more significance when they appear on cue at resistance. It suggests the bulls did not have the confidence they needed to take out resistance, and that bears were still able to exert some influence.
Nison noted that the index had coincidently just achieved its "measured move" target. If you take the difference between the bull-market breakout point (960) and the bear market low (769) of roughly 200 points and add it to the breakout point, you get a rough target of about 1,160.
In addition, that was a level of heavy resistance when the index fought to end the bear market in late-2001 to early-2002. It had topped out at 1,163 in November 2001, 1,174 in December, 1,177 in January 2002 and 1,174 in March 2002 before the renewed its downtrend.
Yet another negative is that the S&P 500 is sitting just below its 200-day simple moving average, a technical indicator that is seen by many as a bull/bear market barometer.
And since the market topped out in March, the index has actually fulfilled one of the necessary components of a bear market -- a pattern of lower highs and lower lows.
The index topped out at 1,151 in early April, 1,146 in late June and 1,132 in mid-September. Over the same time, the 500 hits lows of 1,087 in late March, 1,076 in early May and 1,062 in early August.
As long as this pattern continues, bears will be in intermediate-term control. But that's easier said than done.
'Morning star' brightens the view
One near-term positive for the index is strong support at the most recent low. What makes that level so significant, Nison said, is the appearance of not one, but two "morning star" reversal patterns.
A "morning star" is a three candle pattern consisting of a long black candle (the close is well below the open), followed by a small white or black candle (the open and close are close together) and then a long white candle (the close is well above the open).
It suggests bears had become indecisive, and subsequently lost control, at a time when bulls appeared to be most vulnerable.
The 500 slumped 9 points on Aug. 6, lost less than 1 point on Aug. 9 and then surged 10 points on Aug. 10.
On Aug. 12, the index fell 8 points, then fell about a half point on Aug. 13 before climbing 13 points on Aug. 16.
These are not ideal "morning stars," since there should be gaps between the second and first bodies, but Nison says the definitions do leave some room for interpretation. Given the clarity of the difference in the size of the bodies, the fact that there are gaps between the second and third bodies, and the ultimate resolution of the patterns, these can be considered reversals, and subsequently strong support.
There is also safety in numbers. The index hit intraday lows within 10 points of 1,060 seven times in seven sessions without ever breaking through.
If that support ever gives way, however, Nison doesn't see another significant support level until 960.
The long-term trend
Despite the overwhelming number of negative intermediate-term signs, bulls still win out.
Nison said the long-term outlook for the S&P 500 changed to bullish back in June 2003, when the rally through 960 "broke the back of the bear market" by confirming a triple bottom reversal pattern that the index spent about a year hammering out.
The index had hit lows of 776 in July 2002, 769 in October 2002 and 789 in March 2003, all while being contained by the August 2002 high of 965. The breakout ended a pattern of lower highs and lower lows that had been in place since March 2000.
Unless the index closes below 960 on a weekly basis, Nison said the bull market remains intact.
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