Inverse Head and Shoulders on the market?

June 3, 2016chart patterns, indexes, market timingadmin

There was an interesting Inverse Head and Shoulders pattern completed last night on SPY. As SPY is the proxy ETF for the S&P500 index, it caught my attention. A closer look at the Chart attached shows this pattern usually breaks out to the upside.

Analysis of the supplementary information clearly shows that the uniformity of this inverse head and shoulders is good, however the overall quality of the pattern is only average. The biggest issue is the lack of volume and lack of power of the breakout. The volume is particularly low. More volume is needed before this pattern is confirmed, particularly on a strong up day.

Learn more about Chart Pattern Recognition for TradingExpert Pro http://aiqsystems.com/chartpatterns.htm

Classic Flag Breakouts on CVX, NFG, TOT

May 26, 2016chart patterns, stock market, Stock tradingadmin

Our Chart pattern Recognition tool had a wealth of gasoline related stocks have breakouts yesterday. The classic flag breakout on good volume could be seen on CVX, NFG and TOT.

Quick reminder on what a flag pattern is.

The flag pattern is considered a continuation pattern after a consolidation period. The flag is a rectangular shape, similar to the pennant, but the pennant looks more like a triangle.

Usually there’s a strong price movement followed by sideways price movement which is the flag. The pattern is complete when prices breakout in the same direction as the initial price movement. The following move will be in the same direction as the prior sharp move. The move prior to the flag is called the pole.

The flag pattern forms a rectangle with two parallel trendlines that act as support and resistance for the price until the price breaks out. Usually the flag will slope in the opposite direction to the trend.

The buy or sell signal occurs when the price breaks through the support or resistance level, with the trend continuing in the same direction as the pole. The breakthrough should occur on heavier volume.

I’ve put all three charts together and you can clearly see the pole, flag and breakout. As noted above the volume on the breakout on TOT was reasonable. The Quality of the pattern was also considered high.

Incidentally the volume on NFG and CVX was not as significant.

The entire list of stocks that generated completed flags in our nightly report on 5/25/16 is below.

Visit http://aiqsystems.com/chartpatterns.htm

and check out this new video that shows how we automate this reporting every night using the Chart Pattern recognition plug-in for TradingExpert.

Tired of staring at charts time and time again? We have an app for that

May 18, 2016chart patterns, stock market, Stock tradingadmin

Tired of staring at charts time and time again, not certain what is setting up?

Check out this chart of FITB, Fifth Third Bancorp, How would you have traded this over the last 6 months?

What if you had a tool that shows you the exact pattern that’s setup AND includes the direction the breakout is likely to be? A tool that generates a report every night of chart patterns that have completed and are breaking out.

Wouldn’t that simplify your trading?

Check out this completed falling wedge pattern from 02/12/16. You would have been alerted to this breakout on 2/12/16, the direction indicator suggested that prices will rise and they did.

Or this inverse head and shoulders on 3/1/16, the direction indicator suggested prices would rise and they did.

Visit http://aiqsystems.com/chartpatterns.htm

and check out this new video that shows the most recent price pattern we were alerted to on FITB on 5/13/16 AND how we automate this reporting every night.

Trading Gap Reversals

May 10, 2016EDS, Stock trading, Stocks & Commodities traders tipsadmin

The AIQ code based on Ken Calhoun’s article in April 2016 issue of Stock & Commodities Trading Gap Reversals”, is provided below.

AIQ has also posted the EDS file at “ is provided for downloading at

http://aiqsystems.com/Trading_Gap_Reversals.EDS

Save this file to your/wintes32/EDS Strategies folder.

Since I mainly work with daily bar strategies, I wanted to test the gap-down concept on a daily bar trading system rather than on one-minute bars. I set up a system that buys after a stock has gapped down at least 10% in the last two days and then trades above the high of the gap-down bar. The entry is then at the close of that bar. For exits, I used the built-in exit, the profit-protect exit set at 80% once profit reaches 3% or more combined with a stop-loss using the low of the gap-down bar and also a time exit set to five bars.

I then ran this system on the NASDAQ 100 list of stocks in the EDS backtester over the period 12/31/1999 to 1/11/2016 (Figure 7). The system generated 303 trades with an average profit of 1.09% per trade with a reward-to-risk ratio of 1.35. Slippage and commissions have not been deducted from these results.

FIGURE 7: AIQ. This shows the EDS test results for the example system.

Again, the code and EDS file can be downloaded from www.TradersEdgeSystems.com/traderstips.htm, and is also shown below.

!TRADING GAP REVERSALS
!Author: Ken Calhoun, TASC April 2016
!Coded by: Richard Denning 2/1/2016
!www.TradersEdgeSystems.com

!INPUTS:
GapSize is 10.
GapLookBack is 5.
MaxBars is 5.

!CODING ABBREVIATIONS:
H is [high].
C is [close].
C1 is val([close],1).
L is [low].
O is [open].

GapD is (O / C1 - 1) * 100.
GapOS is scanany(GapD < -GapSize,GapLookBack) <> nodate()
  then offsettodate(month(),day(),year()).
Hgap  is valresult(H,^GapOS).
Lgap  is valresult(L,^GapOS).
SU if  scanany(GapD < -GapSize,GapLookBack).
SU1 if  scanany(GapD < -GapSize,GapLookBack,1).
SU2 if  scanany(GapD < -GapSize,GapLookBack,2).
LE if ((SU1 then resetdate()) or (SU2 then resetdate())) 
 and H > Hgap.
ExitLong if {position days} > maxBars
 or C < Lgap.
EntryPr is max(O,Hgap).
List  if C > 0.

—Richard Denning

Beware the Middle of May

May 4, 2016educational newsletters, jay kaeppel, seasonaladmin

The beginning of the month of May and the end of the month of May into early June have overall been a decent time to be in the stock market. The middle of May, typically not so much.

For our purposes we will split May (into June) into three segments:

*Segment 1: The first 3 trading days of May (Bullish)

*Segment 2: May trading days #4 through #16 (Bearish)

*Segment 3: May trading day #17 through the 5th trading day of June

Figure 1 displays the growth of $1,000 invested in the Dow Jones Industrials Average only during the first three trading days of May since 1934.

Figure 1 – Growth of $1,000 invested in Dow Industrials during 1st three trading days of May (1934-present)

Figure 2 displays the growth of $1,000 invested in the Dow Jones Industrials Average only during trading days 4 through 16 of May since 1934.

Figure 2 – Growth of $1,000 invested in Dow Industrials during trading days 4 through 16 of May (1934-present)

Figure 3 displays the growth of $1,000 invested in the Dow Jones Industrials Average only from the close of May trading day #16 and the close of the 5th trading day of June.

Figure 3 – Growth of $1,000 invested in Dow Industrials during trading days #17 and higher during May and the 1st five trading days of June (1934-present)

Combining and Comparing

In Figure 4 the blue line displays the growth of $1,000 invested in the Dow only during Segment #1 and Segment #3. The red line displays the growth of $1,000 invested in the Dow only during Segment #2.

Figure 4 – Growth of $1,000 during Segments 1 and 3 (blue) versus Segment 2 (red)

*During Segments #1 and #3 the Dow gained +157.5%

*During Segment #2 the Dow lost -51.1%

During 2016:

*Segment #1 extends from the close on 4/29/16 through the close on 5/4/16

*Segment #2 extends from the close on 5/4/16 through the close on 5/23/16

*Segment #3 extends from the close on 5/23/16 through the close on 6/7/16

Summary

So is the Dow sure to gain ground during Segments #1 and 3 and to lose ground during Segment #2? Not at all. For the record:

*Segments 1 and 3 combined have gained an average of +1.2% with 65% of years showing a gain and 35% showing a loss

*Segments 2 has lost an average of (-0.8%) with 49% of years showing a gain and 51% showing a loss

So clearly there are no “sure things” being unveiled here. Still, if the early days of May see the stock market register a meaningful gain it might make sense to avoid jumping on to the band wagon.

At least for another 13 trading days.….

Jay Kaeppel

Chief Market Analyst at JayOnTheMarkets.com and AIQ TradingExpert Pro (http://www.aiq.com) client

http://jayonthemarkets.com/