BELTS, KINGS AND GOLD
The market attempted another pullback last week. Another pullback, another likely failure for the bears. The next thing you know the market will be back at a new high. Why? To figure that out you need to have an intimate understanding of candlesticks. On Thursday morning the Dow was down 180 and before you knew it they unearthed a green bar (CBOT:DJ). Where did that come from?
The green bar is called a belt hold bar. If its green, that means its bullish, red would be bearish. You can’t really begin to appreciate what happened unless you look intraday. So here’s a 30-minute chart (below).
The market gaps down but goes no lower. Bears get very concerned and start to cover. Some smart intraday bulls actually get the courage to come in. There is no tail because it’s a gap instead. It ends up being the low that many times leads to a rally leg. That’s why they call it a bullish belt hold pattern. The line at the low becomes support. In a pullback this pattern is only valid for bulls at a low and for bears a spike in a downtrend. It’s a fairly reliable pattern and since we are that close to the high it’s a reasonable chance we do get a high.
So we came out of the holiday with a shake of the trees. This was a mild shake of the trees because it only covered a couple of days. What you should do is go over any number of charts, even look in the Nison handbook and see how often this kind of formation produces at least a small leg up.
According to our calculations this makes perfect sense because the market overshot price and time symmetry or targets just about every way possible.