What is "Weakness?"

Sorry folks, computer problems and blogger being down for maintenance delayed this amazingly insightful post. My sincere apologies...

For those who have taken trades without a concrete exit I am sure your exit was to "wait for a sign of weakness." As we looked at LVS the other day, we know now what weakness is not. So exactly, what is it?

I am going to throw a few things at you to determine in a bullish trending stock what a sign of weakness is. Candlesticks are the best way to determine weakness and here are some of the most common signals.

The Hanging Man
Hanging Man candlesticks form when a security moves significantly lower after the open, but rallies to close well above the intraday low. The resulting candlestick looks like a square lollipop with a long stick. If this candlestick forms during a decline, then it is called a Hammer.

The Engulfing Pattern
The Engulfing Pattern is a reversal pattern that can be bearish or bullish depending upon whether it is in an uptrend or downtrend. The first day is characterized by a small body, followed by a day whose body completely engulfs the previous day's body.

The Shooting Star
Shooting Star A single day pattern that can appear in an uptrend. It opens higher, trades much higher, then closes near its open. It looks just like the Inverted Hammer except that it is bearish.
.
The Harami
A Harami is a two day pattern that has a small body day completely contained within the range of the previous body, and is the opposite color.


The Evening Star
An Evening Star is a bearish reversal pattern that continues an uptrend with a long white body day followed by a gapped up small body day, then a down close with the close below the midpoint of the first day.

The Dark Cloud Cover
The Dark Cloud Cover is a bearish reversal pattern that continues the uptrend with a long white body. The next day opens at a new high then closes below the midpoint of the body of the first day.

There are plenty more to discuss, but this is all I had time for. Hoefully this reinforces the reasons candlesticks are valuable and supplements what you have studied through technical analysis. Who wants to pick the next topic of discussion?

Love your blog and Master talk. Just checking it see if you get this.

vincentgrisanti@bellsouth.net

Great reinforcement of the Candlesticks!!! They are a good method of actually at the price action and trader's sentiment.

Topic idea? How about the breakout trade entry vs a wait for retest to enter? ALways a stressful time for me.

Some ideas:

NEU
BCR
STT
X
KNX
NKE
POOL

Thanks again for the awesome site!!!

What do you think about AEOS,had an evening star yseterday,is it begining to reverse?

Sarah

Correct that on AEOS, a shooting star.

Jeff,

For topic, when to add to an existing position(one going in your direction). I find some time it is easier to add to an existing position if it is going in your direction Vs enterering a new trade.

thanks
raaj

more candlestick talk!
do aapl!
big love to ya Jeff!
John

I know you didn't have time today, but I would like to see a little more in-depth explanation on each of the candlestick formations. I'm not in the Masters program yet, so haven't had a whole lot of instruction on candlesticks.

John M.

John,

Perhaps you should get a book on the topic? There are several that go into more detail on these formations. I am sure Jeff has plenty to do as it is. Thanks for the post Jeff!

TJ

I agree TJ. There are plenty of resources out there to study. Plus, it's pretty tough to make demands to Jeff when he keeps this great site running for free. Thanks for all you do Jeff.

Dave

I'm not trying to be a wise guy here. I'm obviously interested in this LVS weakness thread and learning all I can from the example. Would it be reasonable to suggest LVS may not be showing decisive weakness yet? Or would that be crazy? After all on 11/15 it closed down 3 points and the candlestick on 11/16 resembles a shooting star (even though it doesn't seem to have the very long upper wick).
Thoughts?
Thanks,
Honu Mike

John M.

"Japanese Candlesticks" by Steve Nison was a good read to follow up on the technical class of candlesticks. It isn't difficult to follow and uses several examples. I think he also has a workbook that goes along with the text.
www.americanbulls.com also explains candlesticks and you can look up stocks in their current market condition for examples.
I hope this helps...
Amy Myers

Great clarification of what "weakness" really means, and what to specifically look for.
Besides the certan candlesticks and decreasing volume, what other specific signs of weakness do you focus on in a short term trade?
Thanks...
Danuta

Jeff,
I've always been cofused why the hanging man candle is bearish. It starts out bullish, the bears bring it down during the day yet the bulls take control to bring it back up before the close. Why is that considered weakness or bearish?

Thanks....
Karen

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