The NASDAQ 100 Index posted a long-term Top on April 26, 2010.  This marked the end of the Great Rally of 2009.  Following that date, the Index executed a five-wave downmove (five waves indicating the direction of the operative trend) which was followed by a typical three-wave (A-B-C) partial retracement of the downmove.  The top of the “C” wave occurred on June 21 with the appearance of a Bearish Engulfing Candlestick pattern, which foretold a strong decline in prices, to follow immediately.

The promise of the Candlestick pattern has been fulfilled: From the top on June 21(1939.77) through the Low as of this writing (1767.47), the Index has declined 172.30 points.

There is a secondary, and very important, significance:  Today’s Low of 1767.47 is lower than the Low (1770.46) of the “B” wave.  That means that the A-B-C correction in the NASDAQ 100 is now overwith, whereby the underlying downtrend has unarguably emerged and is now in force.

Candlestick patterns are remarkably accurate predictors of future price action in financial markets.  This is a fine example.

William Kurtz

June 29, 2010

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Gold posted a new all-time High on June 21, 2010, a week ago today, before falling off so as to close about $34 lower on the same day. It then rose last week and challenged the 78.6% retracement of its falloff on Friday and again this morning, but has been forcefully thrown back to about $1240 as of this writing.

Last Monday’s Candlestick bar pattern was clearly a “Bearish Engulfing Pattern.”  Today’s Candlestick bar just misses being another Bearish Engulfing bar, but it is close enough that we pay attention to it as a bearish warning signal.

If the patterns hold true to form, last Monday’s all-time High was the top of a fifth and final upwave and marks a change of major trend from Up to Down.  The corollary is that last Wednesday’s Low was the bottom of Wave 1 Down and that today’s High was the top of Wave 2 Up, which in turn means that Wave 3 Down is in progress and should lead to substantially lower prices over a long period of time.

William Kurtz

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Once you understand this basic concept, you will understand what Candlestick analysis is all about.

The “Classic” Spinning Top is customarily shown with a relatively small Real Body and relatively small Shadows protruding from it, above and below.

Of course, the size of the Real Body, the size of the Shadows, and the relationship of the Real Body to the Shadows varies from price bar to price bar.

Here’s the key:  Other than a “Classic” Spinning Top, every inbridual Candlestick price bar is a variation on a “Classic” Spinning Top.

Stop for a moment and think about it.  It’s true!

Once you grasp that concept, you will understand what the Candlesticks are all about; and that understanding will remain with you always.

William Kurtz

May 12, 2010
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Here is a beautiful example of the power of typical Retracement Levels to stop price advances in their tracks, and then to send them in the other direction.  The Candlestick presentation makes the example exceptionally clear.

We often see retracements in countertrend moves stopping at one of several typical levels – 78.6% of the initial decline being one of them.

Silver had declined in three waves from its December 3, 2009 High to its February 5, 2010 Low.   From that Low, prices advanced again in three waves to their High on April 12, which is just above the .786 retracement of the decline from December 3.  Since then, prices have been rejected downward to their present level below 1775 as this is being written.

The price presentation in Candlestick format greatly assists in revealing this phenomenon in pictorial form.

Please maximize the chart so that the entire story will be right there before your eyes.

William Kurtz
April 19, 2010

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Following a strong three-wave countertrend upmove which began on February 8, 2010, the Dow Transports have put on display a nearly-perfect Candlestick Bearish Engulfing Pattern.

This example is easy to spot. After two strong white Candles (signifying “up” days) at a logical end to a long uptrend, the tall black Candle (signifying a “down” day) nearly completely engulfed the white bar which preceded it.

If history is any guide, this bearish two-bar pattern is the precursor of a strong selloff in the Transports Index.

Nothing comes close to the Candlesticks in revealing the underlying sentiment of the traders, as a group. In this example, we see that sentiment switched from Up to Down, just as if a light switch had been turned off.

Please maximize the chart so that you can see everything.

William Kurtz

April 20, 2010

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Las Vegas is Welcomed at the Door of Pension Fund Management.

“Make It All Back by Doubling Down.”

Right.

Make a photocopy of your next pension check.  Then frame it, put it in a safe place, and be ready to retrieve it and hang it on the wall as a memento of days gone by.

The lead story in The New York Times today (March 9, 2010) informs us that pension funds which are operated by certain States and companies have begun to move their investments out of domestic stocks and into riskier investments such as offshore stocks (presumably, some of those are stocks based in “emerging economies”), junk bonds, commodity futures, and securities which are backed by questionable mortgages.  However, it is inaccurate to label these devices as “investments.”  This process ought to be called by its correct name: “gambling.”  It is emblematic of the perennial search for “yield.”

There are least two reasons for the shift in attention: 1) pension funds were badly hurt by the falloff in the stock market from October 2007 to early March 2009; and have not fully recovered during the Great Rally of 2009; 2) the funds’ assumptions of the return which would flow from their portfolio is wildly optimistic in the real world, and has been so for decades.

Therein lies a Great Lie, and a Great Cover-Up.  Pension funds are desperate to avoid having to (or being forced to) lower their assumptions of portfolio return, for to do that would necessitate massive infusions of Cash into the funds’ trust accounts in order to bring their future payout obligations into line with reality – and many pension funds, especially those which are operated by the States, simply do not have the money, or any prospect of acquiring it.

States, in particular, are particularly adept at lying to their own people.

The recession is far from over.  We are staring into the face of a full-blown Depression, more severe than the Depression of the 1930’s.  This entire edifice of lies, deception, and desperate risk-taking will inevitably collapse when these so-called “investments” fall into the gutter, as they surely will.  We can look forward to short-changed pension checks, to be followed by civic unrest including strikes by present and future government retirees from the ranks of the teachers, police, firemen, other professionals, and office workers.  What had been thought to be unbreakable contracts as absolute guarantees of security will turn out to be fictions.

There is no easy way out.  There may not be any way out at all, easy or otherwise.  The money is not there, and will not be there, to make up the deficit in promised future obligations, even under present assumptions of portfolio return on investment; and the money is not there, and will not be there, to make up the shortfall which would result from bringing those assumptions into line with reality.

This is a ticking time bomb which can only result in disaster.  Frame a copy of your next pension check.  You will able to look upon it and say “Those were the days.”  If you’re not receiving a pension check as yet, plan ahead on the basis that you may never receive the first one.

William Kurtz

March 9, 2010

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You know that I pay a lot of attention to Reversals of Trend and to Retracements.  Reversals are easy enough to understand and to see on a chart; they occur when prices which have been trending either up or down suddenly stop going in that direction and do a fast turnaround and go in the other direction.  Everything we do at CandleWave is based on estimating likely points of reversal and then scouting them out, even before they emerge.  Most investors are very interested in knowing the point at which a reversal is likely to occur, because it can be safer and more rewarding to get aboard a train just as it is about to leave the station than it is to try to jump aboard when the train is already moving fast down the tracks.

Now, what are “Retracements?”  Simply stated, they are countertrend corrective moves which occur following a Reversal.  It is important to have some idea of the extent to which they may move before they peter out, at which time prices will reverse again, this time in the direction of the operative trend.  That “extent” is expressed as a percentage of the size of the previous move.

Luckily for us, nature has put in place a series of particular percentages which very often prove to be accurate targets for calculating where a corrective move might end.  Four of them come to mind.  They’re easy to remember, with a little practice.  They are the .382 (the “three eighty-two”), the .500 (the “fifty”), the .618 (the “six eighteen”), and the .786 (the “seven eighty-six”).  The first wave down from a major, reversal-generating Top we call “Wave One Down.”  When it reverses and a corrective upmove follows, we call that upmove “Wave Two Up.”

The really interesting thing is that Wave Two Up most often retraces somewhere between 50% and 78.6% of Wave One Down, and usually spends time hovering around the six eighteen before giving up the ghost.

Let me show that to you in real life.  Please look first at the accompanying chart of the Dow Industrials.

At the top of the chart, note that January 19 marked a top at 10729.80.  This was the end of the Great Rally of 2009, which began last March.  “Wave One Down” followed, and bottomed on February 5.  At that point, Wave One Down ended, prices reversed upward, and Wave Two Up was underway.  You can see that Wave Two Up ended on February 19.

I have marked that top end of Wave Two Up by a horizontal green line.

Now, rather than having to measure by hand the percentage extent of Wave Two Up’s retracement of Wave One Down, the computer does it for us.  The computer has measured the price distance between the upper horizontal blue line at January 19 and the lower horizontal blue line at February 5.  The numbers within the small red squares above and below the green line show us that the .618 (being 61.8 per cent, of course) level of retracement was at 10381.22 on the Dow, and that the .786 level of retracement was at 10533.86.  Note that prices reached a High between the .618 and the .786 on February 19 (the green line), and then retreated.  They have pretty much focused on the area between the .5 and the .618 ever since, and closed smack in between the .5 and the .618 on Friday.

.,.,.,.

Now please look again at the chart, because there’s more to see.  Now the computer has made a second calculation.  It has measured the price distance between the High on February 19 and the low of last Thursday (February 25), so that we can know the percentage of retracement of the downwave from February 19 through February 25.  Prices zoomed way down early on Thursday before ending up back in the territory between this newly-calculated “fifty” and “six eighteen” again.  Aha! Look where prices closed on Friday! Right between the newly-calculated “fifty” and “six eighteen,” as those numbers are shown in the rectangular red box.

So, the Closing price on Friday is right smack between the “fifty” and the “six eighteen” ON TWO SEPARATE SCALES OF MEASUREMENT – one on the downwave from January 19 and one on the downwave from February 19.  Effectively, prices have been stopped dead in their tracks, so far at least, by the “six eighteen” retracement level, twice in a row.

This knowledge, plus our accumulated knowledge that prices very often are repelled downward from this group of retracement levels, lead us to believe that prices should not top the high of February 19 AND that they should decline from approximately this point, in what is now Wave Three Down.

The accompanying NASDAQ Composite chart shows the same events.  The dates and the numbers are different, but the principle is identical.  The NASDAQ is sitting a little higher, just under the seven eighty-six measured from Thursday’s low.

.,,.,.,,.

William Kurtz

for CandleWave, LLC

February 28, 2010

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The price of Gold marked its all-time High of $1228 per ounce on December 3, 2009.  Since that time, Gold fell sharply, beginning on December 4, as depicted by a tall black candlestick bar for that day.  From a “Wave 1 Down” Low on December 22, Gold retraced just over 50% of its initial decline, and closed right on that 50% retracement line, leaving behind a bearish “Spinning Top” Reversal bar which could almost be characterized as a “Shooting Star,” which is also a recognized Reversal pattern.  The top of that initial retracement made possible the establishment of a down-sloping trendline, drawn from the top on December 3 to the top of the retracement on January 11.

The aforesaid “Spinning Top” Reversal pattern accurately forecast the strong decline which followed, and then another upmove which hit the down-sloping trendline on February 3 – which was sharply rejected downward by the trendline.  After the ensuing decline, prices were propelled upward again by a strong bullish “Hammer” Candlestick pattern on February 5, leading to a short advance to the point at which prices stand as of today: $1094.0, which is just below the down-sloping trendline and only about 5 dollars short of it.

Tomorrow, and the ensuing few days, will be “make or break” time for Gold.  If it can break upward through that trendline and then Close meaningfully above it, then the chances would be good that Gold will be off and running on a new advance.  On the other hand, if Gold tests the trendline and is rebuffed downward, then the chances would become truly excellent that Gold prices will be on their way down to $800 and below.

So long as prices remain below that trendline, they will continue to be “crowded” thereby, if only because the trendline is on a down-slope.  Every day that passes means that prices would be forced to attack it from lower and lower levels.

If there is to be a rejection of prices by the trendline, whether now or in later days, the characteristics of the Candlestick bar at the point of rejection will tell a good bit of the story which we anticipate will follow along.

William Kurtz

February 15, 2010

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A Candlestick “Hanging Man” bar formed in the Dow Industrials on January 8, 2010.  The
Hanging Man” is bearish, but requires a lower Closing the next day for confirmation.

Our Indicators, not shown on this chart, contain numerous other bearish signals.

We have been awaiting the top end of this Great Rally of 2009 for many weeks.  The Dow has fooled us many times into thinking that, perhaps, “this is the top.”

Nevertheless, we know that the Rally of 2009 has been an upside correction in an underlying bear trend which began in October 2007.  It is not a question of “whether” the Rally will end; the only question is “When.”

There is a chance that, this time, it’s the “real thing.”  We will be watching intently tomorrow to see whether the Dow does or does not close below last Friday’s Closing price.

.,.,,.

January 10, 2010

William Kurtz
For CandleWave, LLC

info@candlewave.com

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