To: Lucretius who wrote (21246 ) 2/24/1999 10:35:00 AM From: John Pitera Read Replies (1) | Respond to
Peter Eliades' Stockmarket Cycles update for Tuesday, February 23, 1999. >From time to time on this update, we talk about Japanese Candlestick formations as they relate to the current market. We do not pretend to be experts on the subject, but we have a working knowledge of some candlestick formations and we look for them in what we consider to be potentially important market junctures. We are at a potentially important juncture now, and low and behold today several market indicators formed what is called a Doji pattern after a long white candlestick. As many of you know, Japanese candlestick patterns are concerned with opening and closing prices which form the body of the candlestick. If the close is higher than the opening, the candlestick is white. If the close is lower than the opening price, the candlestick is dark or black. A doji pattern is where the open and close are virtually the same or very close to the same. Yesterday, Monday, was a long white candlestick opening near the lows and closing near the highs. When they open near the lows and close near the highs, you have a long white candlestick. Today was a Doji candlestick with the open and close on the March S&P contract being within 3% of the total range of the day. So very close to each other and on the Dow within 6% of the total range of the day. Steve Nison, who wrote the textbook on Japanese candlestick, writes in his book, Candlestick Charting, and we should quote this right and we quote, "Candlestick charting provides a signal, not obtained with western technical analysis. To non-Japanese technicians if a session opens and closes at the same level or approximately the same level, no forecasting implications are taken. To the Japanese, such a session, especially at the heels of a sharp advance is a critical reversal sign." Going one step further, today's S&P March contract action classifies it as a Doji Star, a supposedly even more important reversal pattern where the open and close both the same or the close together are both above the prior day's close. In other words, a gap up to the Doji of the prior day's close. We saw that today on the March S&P. The confirmation of the pattern will occur if a long black candlestick appears tomorrow with a close well into the body of Monday's white candlestick. That range was 1242.50 to 1274.50 on the March S&P. If that should occur, it would be called the evening Doji Star and judged to be a top signal. If, on the other hand, tomorrow is a white candlestick which gaped higher and remains above the opening at the close, the bearish nature of the Doji Star will be negated. In closing we should say that we have seen these patterns work spectacularly well and we have seen them fail miserably. In either event, we should know by tomorrow's close if there is some follow-through in terms of the potential accuracy of this pattern, and we promise not to do too much candlestick analysis in the future.
