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Author: montys11 One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 6326  
Subject: Candlestick Charting Date: 8/3/2009 7:47 PM
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Anyone interested in an ongoing discussion of candlesticks, using SPY as the example?

I've been looking at candlesticks, trying to make up my mind as to whether they’re valuable for predicting the future, or if their greatest asset is in predicting the past. All the tutorials show clear examples of reversals, trends, etc. – but when I look at actual realtime charts, it’s not so obvious…

So what I'm looking for are similarly curious investors who want to view SPY candlesticks on a regular basis and gather our thoughts on what the signals may mean. The real value of this would be in reading the charts, and then following up to see if the reads predicted what was going to happen or not.

I'll start with today’s chart (Aug 3). Tall body with minimal upper shadow – very bullish. But the signals preceding it seemed to strongly indicate a market top:
1. Large runup followed by:
2. Multiple hammers followed by:
3. Continued, but decreasing bull moves. Smaller (and decreasing) bodies with long upper shadows.

All of this together should indicate a market top and an oversold market – so the next move should be bearish.

Instead, what we got was a huge bull move. If I were following candlesticks I would have sold off in anticipation of a reversal, but the exact opposite happened.

Further disagreement with last week’s candlestick action was MACD. Huge divergence, albeit slightly decreasing. Plus, all the MA’s point to further strong upward trend – 10-day MA is way above the 50-day, which is way above the 200-day.

What do other people think? Please weigh in with your opinions. I hope this thread can create ongoing discussion. Ill feed it for a while but if there’s just too little ingoing commentary and contribution then I'll let it die.

Thanks for your input!

Monty
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