Candlestick Analysis

Candlestick Analysis – How To Know When It’s Time To “Back Up The Truck” And Buy Stocks.

Here’s how to know when it’s time to “back up the truck” and buy stocks, using candlestick analysis.

Each and every day, go to BigCharts.com and look at the candlestick charts for the Dow (ticker DJIA) and the NASDAQ Composite (ticker COMP). Take note of the candlestick signal, the moving averages, stochastics and volume.

If the chart shows a price trend extended above the 50-day EMA, and stochastics are in the overbought area, chances are a correction is about to happen. This was the case with the Dow in the 11,300 area recently, and the NAS in the 2,360 area. Sure enough, we went through a pretty sharp correction, and the indexes are both back in their respective 50-day EMA areas.

But take a look at the charts today. Both indexes are showing Bullish Harami candlestick signals, with stochastics in the oversold areas. This means that both indexes are finding support at their respective 50-day EMAs. I expect a positive day tomorrow. If so, that will be a new buy signal for the entire market.

Looking at dozens and dozens of individual stock charts today, I am seeing the same situation verified over and over again. Dozens of fantastic candlestick reversal signals, and great buy setups. Lots of Bullish Engulfings, Bullish Haramis, etc. And most at or near the 50-day EMAs.

This makes it quite an easy task to know the best time to be aggressive, and the best time to back off and be more conservative. And unless the market goes to hell in a handbasket tomorrow, candlestick analysis is telling me it’s time to “back up the truck” and buy.

Here’s an article I wrote a few months ago telling you how to be your own stock analyst using candlestick analysis:

Be Your Own Stock Analyst – Why Now It Is More Important Than Ever

If you have been reading the financial news lately, you have undoubtedly run across the stories of the big fines being levied against ten of the largest brokerage houses. Seems their stock analysts presented unusually “rosy” recommendations of the stocks being underwritten by the investment banking departments of the brokerages. These stocks were then sold to retail investors, after which the stocks promptly proceeded to plummet. Investment bankers were becoming very rich to the detriment of the retail investors.

My wife and I had lunch with some close personal friends this weekend. One of them had been involved in purchasing some of this “rosily” portrayed stock from one of these large brokerage houses, with the same end result of the stock price. She graphically described how she felt after being “taken to the cleaners”:

“You know, some veterinarians have what they call a “donor cat”. This is a cat that has very healthy blood, and is used to donate its blood to the sick cats in the vet’s office. That’s exactly how I felt after losing all that money while the broker was painting a rosy picture all the way down – just like that “donor cat”!”

The fact is, there are inherent problems in the recommendations of a stock analyst. Let’s look at the three main issues with paying attention to what a stock analyst says:

1) A stock analyst is virtually forced to make “rosy” recommendations.

In the brokerage business, underwriting contributes much, much more to profits than does research. If the investment banking department of a big brokerage house underwrites a new issue, do you think a stock analyst in their right mind would have anything negative to say about the stock? Not if they have job security on their mind!

In analyzing the careers of the most successful stock analysts, it has been noted that the highest ranked have been the most “optimistic” of the stock analysts.

2) It is rare for a stock analyst to issue a “sell” recommendation.

Obviously, company CEO’s do not like to see sell recommendations on their company from a stock analyst. Companies can even retaliate against a stock analyst who downgrades the stock. The life of that stock analyst can become pretty miserable.

Stock analyst sell recommendations have historically been in the 2 – 3% range of all recommendations. Even with the new rules enacted last December, they have only gone up to 10%.

3) A stock analyst will overlook key forces at work, like supply and demand in the market.

A typical stock analyst is smart, and knows well the industry sectors and the firms within them that the stock analyst is assigned to cover.  But sometimes their analysis does not take into consideration actual market forces going on at the time.

For instance, a stock analyst may downgrade a stock simply because it is “too high, based on valuation”, even though it is likely to keep rising for months. Or they may upgrade a stock that has fallen to “undervalued levels”, even though the stock may stay “undervalued” for years.

Using our system of Candlestick Analysis, you can easily outperform 90% of these professional, high-paid stock analysts. You can truly be your own stock analyst!

How can I say this? Because all the prejudices of a large brokerage house stock analyst described above are totally irrelevant in Candlestick Analysis. You are not “forced” to view any stock with any preconceived notions. You simply glance at the candlestick pattern and say it’s a “buy” or a “sell”.

You don’t have to wait for months or years for your wonderful analysis to pan out. You will know within a day or two if you were correct in your own analysis.

You are using the information that is going on in the market right now, you are not “mind-reading” the market – you are simply using what the market is telling you by simple analysis of the candlestick patterns.

This is how we can honestly say that it is possible to average 10% per month in the market, because we let the market tell us what we need to do at any particular time.  Is it always easy? Not on your life! But that is what makes this game so fun!

Learn to be your own stock analyst with the techniques we teach you. Don’t be that “donor cat”, ever again. You will have a much more rewarding life.

Candlestick Analysis Videos – How To Master The Stock Market In Record Time!