On Friday, March 6, 2009, after a very long and disheartening downtrend, the Daily patterns of the Dow Industrials, the S&P 500, and the S&P 100 displayed Candlestick signals which hinted of the possibility of upside reversals. In particular, the Dow’s pattern was a “High-Wave Spinning Top,” while the S&Ps’ patterns were each a “High-Wave Doji.” Both of these are recognized in the literature as indicators of possible change of trend.
I alerted my friends to watch on Monday for a possible rise in all of these Indexes. To my dismay on Monday, rather than rising, each of these Indexes declined. Nevertheless, I had faith that the power of those signals was still in hiding, and would burst forth within the next very few days.
As it happened, all of them rise smartly on Tuesday: the Dow gained about 147 points; the S&P 500: 46 points; the S&P 100: 20 points. I’m satisfied that the reversal signals “worked.” As this is being written on Wednesday morning, March 11, the Indexes are higher again.
An interesting aspect which fascinates me involves an examination of the four price bars which constitute that which I assert to be a powerful, but unorthodox, Candlestick reversal pattern: a four-bar variation of the Morning Star. In this instance, the first of the four bars (in the S&P 500) was a tall black candle on March 5; the second was a High-Wave Doji very near the closing price of the day before; the third was a small real-bodied Candle which closed slightly lower than the day before; and the fourth was a tall white candle. I assert that this four-bar combination is a variation of the classic “Morning Star” pattern; that it is a powerful reversal signal in its own right; that it ought to be recognized as a separate Candlestick pattern; and that it ought to have a name of its own. Here it is: the “Tokyo Express.” Furthermore, it ought to be accorded the distinction of recognition as an orthodox Japanese Candlestick pattern. Its counterpart at the top end of a trend (that is, the counterpart of the “Evening Star”) will be the “Osaka Clipper.”
The market is up this morning, so up to this point our newly-christened “Tokyo Express” is off to a good start. We’ll see how this example of the pattern performs.
On another note, we’re looking now at an “Evening Star” three-bar pattern in May Mini-Silver. True, it formed after (and as part of) only a very short rise in prices; so to that extent it ought not qualify as a true “Evening Star.” The first of the three bars was a white Candle, admittedly not a tall one, but the range of the bar’s prices on that day (March 5) might be considered as a help in qualifying the bar. The middle bar was an excellent “Shooting Star.” The third bar was a tall black candle. So, at least we noticed it; admittedly it falls short of being described as a classic “Evening Star;” and yet we do ascribe to it at least some power of prediction of lower prices. As it happens, prices on the following day (yesterday, March 10) did decline, by about 40 cents in the May Mini-Silver.
This is the assertion that I would like to make: Japanese Candlestick analysis ought not be a rigid theology which was locked in place with fixed borders and pattern names centuries ago. Rather, it is a dynamic system of price analysis, about which we learn more every day; and as new discoveries of its fascinating workings come to the fore, they deserve recognition as legitimate expansions of the present body of knowledge and understanding.
William Kurtz
March 11, 2009
http://www.candlesticksonsteroids.com
