The Markets staged a nice turn around on Thursday and formed a hammer candle stick. The candle stick is a favorite formation of mine, and after a down trend in this case for the last few days could be a sign of a reversal.

This is not a perfect hammer formation but it’s good enough so keep an eye out for some upside the next few days.

This lesson also points out basic support and resistance strategies. As with any type of charting strategy it is not exact science but the use of it can increase your probabitlity for profits.

This is sometimes called the box strategy which was made popular Nicolas Darvas in the Book – “How I Made $2,000,000 in the Stock Market.” written back in 1961.

If you view the chart below on ANR you will see that it bounced off the $14.50 level 3 times and moved up to a resistance of $22.50. Obviously when it happens the first time you won’t know that these are support or resistance levels until it happens again.

After the third bounce it’s a good chance it will eventually test the top resistance level again. If it breaks above the $22.50 level, this an be called a break out. To play this correctly you would have to give yourself alittle room on the down side.

1. Enter the stock before it makes the second bounce and give yourself a stop loss of atleast .50 in this case incase it doesn’t bounce exactly off the first support level.

2. Enter the stock after the second bounce and it is headed back up with a stop loss at the bounce level.

3. Exit the stock after it test the top levels and failed to break it.

4. If the stock breaks the top risistance and continues upward, use the resistance level as a stop loss, or use a trailing stop if the stock continues much higher.

The Dow broke down below a 20 day symetrical triangle, although it closed very near the bottom of this trend line we could bounce since charting is not an exact science. If we are to bounce it should happen on Thursday. If the market closes down again, the next logical step is to test the lows made on October 10th. This exact number is 7,773.71. It may not happen in one day but I’m sure will will happen soon.

Until then I sugess you sit on the side lines before openining any new positions.

Lots of bargains in the market but they could get alittle cheaper in the next few days.

Solarfun Power Holdings – SOLF has formed a text book hammer pattern. After a standard down trend, the bottom candle shows that buyers have come back into the markets and reversed the downtrend in one day. This candlestick is the hammer which is shown with the long tail and little body. I believe this one will see some upside here.

While I am solemnizing over the financials, I am picking myself up also because the equity markets index prices have bottoms and are looking good in our favor.

While we sold out of the financial secot filled PEY a couple of days ago, we are still in AT&T from last year (LOL), SPY, QQQQ, DIA, and our new additions and re-entries last months and this month are CNP and ATML. CNP in the Utilities sector, which is doing very well and even outperforming the S&P500, and so is the Technology sector of which ATML is apart of. There were also recent insider buys in the CNP stock in march.

CNP’s stock is experiencing a monthly entry from the powerful CCI system I have come to favor because of its simplicity and accuracy. Also, CNP has bounce off for the 4th time off of its weekly support trendline. That same line was also the back of another support line. It made a gartley pattern and all of this merged together at the 78.8% fib. support line.

We are looking at the downward trendline as a point of reference to watch for signs to exit at $16.98; however, given the monthly signal and weekly bounce, I have set my main target first at $18.68, which is above the downward trendline (would be a break out) and at a horizontal resistance line. I cannot make any commentary beyond that except to say, “Let’s wait until we get there to see what we should do;” that is, on a weekly basis. Now, on a monthly basis, all I can say is that it looks like it will break above its 52 week high if we break above $16.98, given our monthly CCI signals.

These are the reason why I bought CNP and why I think now is the perfect entry again:
A few days ago, this stock made a strong move above the 34 EMA. Today the stock pulled back down to the 34 EMA line for the first time. I have plotted a 34 EMA on the close, the low and the high. I am calling this The Wave. Prices are above The Wave and The Wave is pointing upward, showing that we are in an uptrend. f you look at The Wave a few weeks ago we were below The Wave and prices kept bouncing on and off of it.

In the middle of The Wave there is also a 38.2% and 78.2% Fib. Convergence, which is support. It is always good to see convergence! Usually, short-term traders/swing traders and investors will come in and BUY at this Wave of Support, I like buying pullbacks.

The CCI 50 is above Zero, showing that we are in an uptrend. If everything goes well this week, we will get extra-extra confirmation on the small CCIs to confirm that our entry and timing was perfect, and make us feel extra safe. This could happen tomorrow or Thursday. Also, it is the end of the month and I expect to see a doji tomorrow on CNP; now, that would make me very happy if it happens, but let’s wait and see! But we have enough convergence and confirmation to enter and leave it alone.

If you have not sold and shorted TLT (the 20 year treasury stock) here is your second chance: A simple pull back strategy to The Wave in a strong downward trend. There is also a 38.2% Fib. Convergence there. A typical stop would be above the Wave where the purple circle is ($94). Look how the MACD is below Zero and the CCI 50 is also below Zero, ready to turn around this week!

What is strange is that I still feel extremely bearish about the stock market, yet I am going long, following technical things.