Thursday, March 16, 2006

Hope Springs Eternal in the Bearish Breast

The "Ten Year" post (below) is more interesting than this one, but I wanted to at least mention that today's QQQQ shows a nice bearish engulfing pattern. I've highlighted other recent instances of this candlestick pattern. It doesn't always precede a fall, but it's a pretty good clue.


Of course, what we want to see this lead up to is a break below 40.16 on the QQQQ, which will turn this into Peanut Butter Jelly Time.

10 comments:

costas1966 said...

Those qqqq and Nasdaq acted in a worst possible way and the volume was close to 2.4 billion. But I have problems with the S&P 500 as well. The breakout there was on anemic volume. This could very well have a similar type of reversal as well. A bearish candle like a shooting star or engulfing candle on extreme heavy volume would not surprise me at all. I am curious to see if that happens tomorrow on options expiration.

Super Bull said...

Trader Tim,

This is getting really silly. If you go back to the beginning of this bull market in March of 2003, you will find countless examples of this so called bearish engulfing pattern. The predictive value of this pattern is NIL. This pattern simply means that traders are taking advantage of the openning price to lock in some profit. That is all.

Ken Gor said...

Tim,

I respect your technical analysis. However, it is always easy to keep calling top while at the same time saying it could rally more. Did you buy on the recent rally?

I used to read a blog by a clown called Roberto Pedone at nasdaqtrader.blogspot.com, and he kept called market top since the beginning of this year. And so far we are way up since the 1/1/2006. He is bound to right, as market has to pullback at some point of time. Anyway, just to make sure you are aware of his plug of his own blog. He left a comment under a post below.

Thanks,

Ken Gor

John Wheatcroft said...

I went back to the beginning of the "bull" market, March 03 and did an analysis of this pattern (bearish engulfing). Here are my findings. Given 766 possible events (trading days) there were 171 instances of bearish engulfing candles.

I looked ahead from those instances and found that the next days return, on average was .31 per share. 10 days later the return was -.34 per share and 20 days later the return was -.69 per share.

My conclusions are that a bearish engulfing provides a near term opportunity for profit but you must watch your position carefully because it is more probable that it will lose over the longer term.

Does a bearish engulfing signify a top? No, of course not, just an opportunity several days in the future to buy a dip - and it always will.

As I am fond of saying - the collapse of '29 was just an opportunity to "buy the dip." And for those of us who are neither bulls nor bears but risk managers we were there. We will be there in the future as well. Hope you will too.

Tim Knight said...

Believe it or not, I'm not a permabear. If you use prophet.net and look at the Published Notes & Charts, you'll see my track record there averages something like 70% over the long haul; and the big winners are long recommendations. I agree the bearish engulfing pattern is not a huge slam-dunk. It's just one DAY, after all; not exactly a big trend! And, judging from the market's performance today, looks like another up day for the market for an overall crummy week for the bears.

PB said...

I think everyone agrees that this has been a weak up-move by the major indexes. Any sort of a sustainable rally needs to be rooted in a good healthy sell-off, which we have not had since OCT '05, but one like MAR '05 would be better. If you are a bull or a bear, you would want some sort of a pull-bakc here, the market is waay too strecthed! In any event, this weeks action brings us that much closer to putting in a major top in the averages. Go super-bull, push us up another 500 Dow points, you'll make the bears that much richer!

Tim Knight said...

I think I'm going to hold off on any fresh post today; there's simply just not much to say; Friday was really ho-hum, and The Ten Year View really says it all for me right now.

I am blown away at how good the comments from my readers are; keep 'em coming!

dontLooseYourHead said...

Tim,
Question for you.
WHy do you have your list sorting, ascending and descending backwards ? I have noticed that for years...I have been forgetting to remind you of it.

Dont post this. You can respond to me directly at sereddy1@yahoo.com.

dontLooseYourHead said...

One more question:

1.I think it is difficult to relate bloggers comments with out the date in the time stamp. currently you only show the time at the bottom of each comment.

2.The display "Your comment has been saved and will be visible after blog owner approval." at the top of the page is not very useful. That display should appear right near this text box. Bceause most new comers dont know where to look for this comment. Unless you scroll all the way to the top you cannot see it.

Just trying to give you some feedback to make this blog more effective..

Again , no need to post this comment either.

Just my 2 cents...

mike said...

Tim:

Over at another site Robert McHugh (many of his articles are on safehaven also) puts out multiple summaries a week about the market and has also been bearish for quite a while.

Since this past fall when he expected a bigger drop then we got, and back to last year, he has been increasingly focused on the role of the fed in pumping liquidity (M3) into the market when it starts to drop to much in order to bolster it back up and the fact that this is the primary reason they are no longer reporting this data.

While he keeps expecting, technically, a very large drop, he just isn't convinced the fed will let it happen but may rather continue to bolster the markets with liquidity on any sign of real weakness.

Your overall view is quite bearish. I was wondering if you have thought about this issue and how it may impact your views.

Mike