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Daily Newsletter, Monday, 04/08/2002

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The Option Investor Newsletter                   Monday 04-08-2002
Copyright 2001, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
      04-08-2002          High     Low     Volume Advance/Decline
DJIA    10249.08 - 22.56 10258.91 10120.87  1.10 bln   1834/1342
NASDAQ   1785.87 + 15.84  1786.40  1733.84  1.59 bln   1908/1647
S&P 100   563.95 -  0.07   564.02   557.19   Totals    3746/2989
S&P 500  1125.29 +  2.56  1125.41  1111.79             
RUS 2000  503.01 +  5.25   503.02   493.76
DJ TRANS 2753.30 - 25.11  2776.86  2718.98
VIX        20.92 -  0.19    22.78    20.78
VXN        40.38 -  0.44    42.93    40.38
TRIN        1.16
PUT/CALL    0.91
*******************************************************************
Of Oil and IBM
By Buzz Lynn
buzz@OptionInvestor.com

Overseas, Iraq set the tone for an early morning selloff as it 
announced it would cease oil shipments to the West for 30 days in 
support of Palestine.  You could see the S&P June futures drop 
eight points in a matter of six minutes around 6:30 a.m. ET, as 
the financial markets pondered the implications of restricted 
supply.  While the move would reasonably set traders on edge, the 
long-term effects will likely be negligible for the U.s. economy.  
Keep your fingers crossed that suicide bombing don't resume in the 
Middle East.  More of that could further destabilize the region 
such that oil shipments DO become critical.  For now, the oil 
flows from elsewhere and supply is stable.  Russia, who just weeks 
ago bowed under OPEC pressure to cut production, will be only too 
happy to fill the void.

Shortly after that announcement, IBM finally confessed its sins 
(as if we didn't know) that it would miss its already bogus 
earnings number.  So if you were led to believe by analysts who 
rely on management for a pro-forma number (read that, manufactured 
from thin air), you were extremely interested to learn that 
earnings after all the bad stuff had been reduced from an 
estimated $0.85 to $0.68 in order accurately reflect more bad 
stuff.  Oops!  Revenues won't be as high as projected and neither 
will profits.  

If ever there was a moment in time to change your level of 
confidence in management or analysts, this is it.  It once again 
offers a sterling example of how these folks have no idea any 
better than ours that the economy is recovering.  As Sun's Scott 
McNealy pointed out two years ago, "If they didn't see the cliff 
coming, how do they know when they've hit the bottom?"  They 
don't.  Otherwise, they would not have had to reduce their numbers 
so drastically.  Interesting that a late '01 recovery became Q1, 
then Q2, and now stands at H2 recovery for the economy that never 
had a recession.  Interesting new-age semantics too that used to 
be called by its rightful name, Bull Something.  Don't buy into 
it.

Just by way of example or an exercise in thinking, ask yourself 
what this might mean to other technology companies like EMC, MSFT, 
INTX, DELL, SEBL, or ORCL over the next few quarters.  Their 
business will explode like the good old days while IBM gets 
killed?  Not likely.  I'd next expect MSFT to offer words of 
caution as the next earnings season kicks off beginning this week.  
The next two weeks will be chock full of, "Sorry, we'll do better 
next quarter."  Then again, what's different about that?  Thus, 
don't expect major changes in the market.  This won't surprise 
anybody except a bunch of clueless analysts.  And it didn't stop 
most software makers from staging a nice recovery off the morning 
lows.

Ooooooh!  This just in. . .The New York Attorney General is suing 
Merrill Lynch for issuing misleading information!  Imagine that!  
Who knew?  Brokers misleading the public?  NY AG must be kidding - 
I thought brokers were there to offer us great advice!  'Scuze me 
while I remove my firmly-planted tongue from my cheek.  You can be 
sure that Henry Blodgett, formerly of Merrill, will be deposed 
about his "Amazon at $1000" call.  Merrill likely is just the tip 
of the iceberg and a precursor of things to come in the brokerage 
business.  See more news below.

All that said, IBM gave up $9.50 from Friday's close to find 
support in the $87-$88 range, its September and March lows from 
last year.  And while its volume was huge in comparison to its 
average, the rest of the market remains very sick volume-wise.  It 
takes much more volume to make markets meaningfully rise, plus the 
market is entering a traditionally slow season.  Were this a one-
day event, it would be easy to waive it off and assume that the 
markets will rise again tomorrow.  But the repeated character of a 
market with slowing or waning overall volume is characteristic of 
a bear market.  Better get used to that if you aren't already.  
The volume we see is a lack of interest born of reduced 
expectations from the "buy and hold" folks" - from all investors 
for that matter.  

Personally, I expect we will see a decline in value of stocks or 
an increase of corporate earnings to bring financial ratios back 
to where they represent an interest in an on-going concern rather 
than a speculative piece of paper.  Furthermore, I would expect 
the bearishness to enter an extreme too over the next few years 
(yes, years - it isn't just me - see Warren Buffet or John 
Templeton or Bill Gross).  Once the investing public has thrown in 
the collective towel and sold their last share of stock (and as 
Bill Fleckenstein notes, "Once CNBC is off the air") that will be 
the bottom.  Buy and hold?  Not until then.

Very quickly, in other news, Ameritrade is buying privately held 
Datek for $1.3 bln in stock.  If you think lower volume will have 
an effect on brokerage earnings in coming quarters, here's the 
first clue.  Look for more brokerage mergers as investors curtail 
business and put the squeeze on those operating in yesteryear's 
tinted rose shadow.

Also, Prudential reports that Easter week sales were weaker than 
expected for major retailers, while that didn't stop some 
retailers from actually posting gains today, we have yet another 
clue that the economy is not yet in recovery mode as long as the 
consumer is tightening his/her wallet.

So how about those charts?  Any tidbits there?

S&P 500 - SPX chart (weekly/daily/60):


 

Weekly charts still in decline with stochastics pointing bearish.  
Daily charts however may have bottomed as the 5-period stochastic 
has sprouted fledgling horns from oversold.  While the SPX still 
trades under its 50 (magenta) and 200-dma (gray), Bollinger band 
support at historical support, both at 1120, provided some bullish 
end of day data.  Meanwhile, despite that the 60-min chart fell 
below its declining wedge support in early hours, it clawed its 
way back above 1120 to 1125 where it met its declining high 
trendline.  Yet stochastic for the 60-min chart remain bullish for 
now and might portend a little bullish trade tomorrow morning 
through that trendline.  But, I'd be a call buyer on pullbacks to 
1120 based on current charts assuming the 60-min stochastic cycles 
to oversold along with it.

Dow Industrial - INDU chart (weekly/daily/60):


 

Similar chart pattern for the Dow except that it already trades 
above the 50 where it continues to find support.  While the weekly 
chart is bearish, the daily stochastic has turned meekly bullish.  
And the 60-min chart stochastic is also bullish.  If trading the 
DJX, watch out for resistance at the declining high trendline.  
10,275 could provide the catalyst for a pullback along with then 
overbought stochastics.  Pullbacks to 10,150 - 10,200 might 
present call-buying opportunities as long as the daily stochastic 
doesn't die in the process and the 60-min stochastic reaches to 
oversold.

NASDAQ - COMPX chart (weekly/daily/60):


 

Amazing but true - IBM gets killed, which ought to bring down the 
whole tech sector (primarily NASDAQ), and it rises nonetheless.  I 
don't yet understand the disconnect, but these are charts, and we 
could care less why - just that they ARE.  Again, similar story - 
daily/60 coming up bullish while the weekly remains in bearish 
mode.  Nice bounce off former support levels gave way to nice 
daily/60 min stochastic recovery that may have legs.  Pull back to 
1770 might make a call buying opportunity if the daily stochastic 
remains bullish and the 60-min cycles to oversold with the 
intraday pullback.

As for the VIX, I've been noodling some thoughts on it lately 
thanks to an Amsterdam Exchange trader who also happens to be a 
reader.  Using VIX as a measure of volatility, by definition, it 
moves lower the more price-stable the OEX becomes.  As the ranges 
tightens, the VIX falls.  If the OEX sinks like a stone or shoots 
up like a rocket, the VIX will rise.  With daily volume scaling 
back though, drastic market moves become less likely.  From that 
we can conclude that even as the market slowly grinds south, the 
VIX can remain low.  Also, while not as likely in my opinion, a 
very bullish week could actually spike the VIX a bit.  The low VIX 
is reflective of the idea that investors are pretty confident that 
the market will keep doing what it's doing.  I call this 
complacency since a consensus of investors are usually wrong.  I 
just can't see positive news jarring the VIX out of its slumber.  
It is more likely that VIX spikes will happen on down days.

The upshot of all this is that I am not relying as much on the VIX 
to tell me market direction as I am to tell me that investors have 
remained complacent and may continue to do so for a long period of 
time, even as the lobster in our collective pots gets cooked.  In 
short, it doesn't have to spike to convince me we could see 
further downward action.

So what for tomorrow?  Hmmm. . .another $64,000 question in which 
if I had the answer, we could charge $10,000 per month for this 
newsletter, and it would be worth every penny.  But my best guess 
is for continued bullish action into tomorrow morning in light of 
the CPQ news (if you call it that - they announced that they would 
meet or exceed estimates of $0.01 and the stock reacted well after 
hours).  Maybe they can blow some of that magic market dust around 
- sort of like the poison poppies in the Wizard of Oz that put 
Dorothy and friends happily to sleep against their better 
judgment.  No matter - the charts say we have bullish swing trades 
to take advantage of despite the bearish weekly trend and we have 
little economic news this week.

See you at the bell


********************
INDEX TRADER SUMMARY
********************

Time to Buy?
by Leigh Stevens

Tough question for anything but selective buying, as I would also 
like to see what develops over the next couple of days. Doing some 
short-covering and taking profits on Index puts was, at a minimum, 
a good idea in my play book. Of course, short-covering does not a 
sustained rally make, but it helps a LOT in making a bottom. 
Looking at each index, the following is how the indices look when 
you tack on today's market action.

OEX: The S&P 100 got VERY close to my downside objective of 555 
(low: 557) and the lower envelope line in the 553 area.  Today's 
new lows (for the move) and subsequent strong rebound should not 
be discounted, as it may be part of bottoming action. The decline 
looks it was at least a good opportunity to take profits on OEX 
puts. Key near overhead resistance is right at today's intraday 
high around 564, or just a bit higher at 565. A close over 565 
would make this daily reversal look pretty good and put the OEX 
back above the up trendline dating from the Sept. lows.



  

NAS 100 (NDX) & QQQ - NDX also got right to the low end of its 
downtrend channel, in 1340 area, not far above my "ideal" downside 
objective at 1326. There's nothing quite perfect in life, 
including my targets; watch key overhead resistance at 1400. 

QQQ fell to my 33-33.50 target area and made an almost picture 
perfect double bottom, relative to the late-Feb. bottom. Buying 
QQQ on a further dip over the next 1-2 days is looking good.  
34.30 or better would be a place to initiate some long positions, 
with a stop at 32.50.  A bullish upside breakout occurs with a 
close over 35.50.  My initial upside objective is to 38



 

SPX: The S&P 500 got down exactly to the low end of its downtrend 
channel at 1122.7. This completes a 62% retracement of the 2/22 – 
3/19 advance. I thought we might see 1100-1105, which is an 
"ideal" target. But we are probably not going to see lay up type 
levels. Another move down into the 1115-1110 area may present a 
buying opportunity.

I'll continue to update on what my timing is to get long this 
market, which is my preferred next trade on a risk to reward 
basis. Market may not have huge sustainable upside, but recent 
lows are becoming attractive -especially as you have a definable 
place to set stops; i.e., just under the lows. 



 

DJIA - Intraday low at 10,120 got close to my 10,025 target; since 
everyone sees 10,200 as support and the institutions are not going 
to sell the Dow stocks in a major way ahead of earnings, except 
maybe to lighten up on IBM (or other earnings disappointers), 
10,000 area is probably too much to hope for. By the way, DJIA 
bounced from the area of its 50-day moving avg. at 10,171. 

Looking at some of the harbingers of global political turmoil and 
insecurities, that of Crude Oil and Gold, both continue to look 
toppy to me. Nearby crude oil, on the Iraq news has not surmounted 
the previous nearest futures high in the $28 area.  



 

Nearby gold futures has an apparent double top in the $307 area. 
Have been trying to buy the precious metals index XAU May 65 and 
60 puts on a further rally to 73 and higher (last at 68.81) but 
XAU high already made at 72 might not be exceeded.



 

The business media talking heads seem to be surprised today that 
oil and gold prices didn't shoot up again on the Iraqi 
announcement, etc. What makes an overbought (or oversold) market 
is just this kind of thing -- the market stops going up (or down) 
on bullish (or bearish) news. 


NEW LONG TRADE SUGGESTIONS: 

Buy QQQ at 34.30 or lower
Stop: 32.50.  
Objective: 38.00  

NEW SHORT TRADE SUGGESTIONS: NONE


Leigh Stevens
Chief Market Strategist 
lstevens@OptionInvestor.com 


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***********************
INDEX TRADER GAME PLANS
***********************

As the Financials Go, so goes the Market MO
by Leigh Stevens
 

New York Financial Index (NF) - Symbol: $NF.X

If you don't watch this sector or sub-index, start following it, 
as it is a good bellwether for the NYSE & S&P. As the NY 
Financial go, so goes the (overall) market MOmentum ("MO").

The New York Financial Index (NF) is comprised of all the 
financial stocks on the big board. It will lead or move ahead of 
the overall market at times. Right now, NF is consolidating in a 
bullish flag pattern on the weekly chart. 

Implications of this pattern, assuming a decisive upside break 
out above 620-621, is that NF will go to an eventual new high, 
well above 650,the area of the prior peak in the NY Financial 
Index. The potential for this, (again) assuming that we will see 
a bullish breakout above 620-621, bodes well for an eventual new 
high in the S&P & DJIA.  



 


BEST & WORST PERFORMING SECTORS:

BEST PERFORMING, 4/8/02


 	

Looking at the top five sectors, it's apparent why we got a fill 
in RTH below.  I still like the short side of this Index, but as 
always, risk ONLY to the stop point.  

WORST PERFORMING, 4/8/02:


 

I have highlighted the weakness in the Transportation sector 
recently and that continue in spades today.  Other than this 
group, it is the same culprits that continue to be unloved.

The Semiconductor Index (SOX) looks like it could have bottomed 
as per the chart below.  The index rebounded from its up 
trendline and from a "line" of support dating back to the July-
August lows in the same area.   



 

NEW TRADE PLAYS AND GUIDELINES: 

1. XAU (PHLX Gold & Silver Index)
BUY May 65 puts at 2.00 or better.  
Stop: .85 or to no value on the option
Objective: 6.00
Time frame: 4 weeks.

** SEE THE GOLD FUTURES CHART IN THE INDEX TRADER WRAPUP

2. RTH (AMEX: Retail sector trust stock)
Trade Entry: SHORT at 99.00 or better  
Objective: 90; Stop: 102 
Time frame: 3-6 weeks.

UPDATE - Filled today (4/8/02) at 99.00


OPEN LONG TRADES: 

3. UTH - Utilities Holders trust (AMEX) 
Accumulate in 95 - 96 area; Stop: 91.00
Objective: My target (next 12 months) is to 116

OPEN SHORT TRADES:

RTH (AMEX: Retail sector trust stock)
SHORT at 99.00 or better; initiated 4/8/02  
Objective: 90; Stop: 102 
Time frame: 3-6 weeks.

Sector: XLB (Basic Industrial Sector SPDR) at 23.75
Stop: 24.50

Sector: XLP (Consumer Staples SPDR) at 26.00
Stop: 26.25

Sector: IYD (US Chemical Index iShares) at 45.25
Stop: 46.60

Sector: IYE (US Energy Index iShares) at 49.70
Stop: 52.00 

RISK to REWARD guidelines:  
Determining an objective is important, even if it is a moving 
target, as this is the reward potential.   Determining reward 
potential is critical to establishing whether a stop that makes 
“sense” (e.g., a sell stop that was placed under a key support 
level) would, if triggered, result in a dollar loss that is in 
proportion to profit potential; e.g., 1/3 of it.  (On occasion, 
when the purchase price of call or put is equal to 1/3 or less of 
the estimated reward potential, there may not be a specific exit 
suggestion, as the cost of the option is equal to the amount that 
is being risked.)   


Leigh Stevens
Chief Market Strategist
lstevens@OptionInvestor.com


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The Option Investor Newsletter                   Monday 04-08-2002
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


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*****************
STOP-LOSS UPDATES
*****************

WLP - call
Adjust from $63.50 up to $64.00

HGSI - put
Adjust from $21 down to $20

IBM - put
Adjust from $103.50 down to $89


*************
DROPPED CALLS
*************

None


************
DROPPED PUTS
************

CTX $52.89 (+3.01) Housing stocks came back with a vengeance on
Monday, despite the broad market weakness.  The DJUSHB index
managed a 3.7% advance, breaking the fledgling downtrend line
and launching CTX for a solid $3 gain.  That broke our stop at
$52 and brings the play to an unexpectedly early close.  While
the stock still looks vulnerable to the downside, we clearly
need to allow it more time to soften up before we take another
swing at it.


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traded options,” claims author Larry Spears in his new compact 
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and clicking on the link to the book on its home page.

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*********************
PLAY OF THE DAY - PUT
*********************

HGSI – Human Genome Sciences $17.58 -1.47 (-1.47 this week)

Possessing one of the largest human and microbial genetic
databases, HGSI licenses its database of knowledge to
pharmaceutical heavyweights like GlaxoSmithKline and Merck.
Management has chosen to forgo the race to decode the entire
human genome, and has instead focused on finding and patenting
genes involved in developing gene-based therapeutics.  Its
four compounds currently in clinical trials are intended to
limit the toxic effects of chemotherapy, promote the repair of
damaged cells, stimulate antibody production, and spur regrowth
of blood vessels.

Most Recent Write-Up

One negative news story after another was responsible for the
drubbing suffered by the Biotechnology sector (BTK.X) last week,
and it is looking like this index is going to challenge and
possibly take out its early February lows near $450.  While the
daily oscillators are buried in oversold, the weekly is still in
a nosedive and showing no signs of life.  Not only is the BTK
underperforming the broader market, but its relative strength
line moved to a new 11-month low relative to the S&P500 on
Friday.  Clearly this is a weak sector, and our new play HGSI
is similarly weak relative to the BTK.  It's relative strength
line hit a new 2-year low on Friday, giving us just the sort of
setup we like for a high-odds put play.  And if that isn't enough
to get your interest, note that HGSI broke long-term support and
traded to its lowest level since the fall of 1999 on Friday.
There is a fair amount of support from the middle of 1999 between
$17-19, but after that, there is nothing to prop the stock up
until reaching the $12 level.  Trading as low as $19.02 on Friday,
April 05, 2002HGSI is excruciatingly close to giving a fresh sell
signal on the PnF chart.  That will come with a trade at $19,
giving a fresh double-bottom breakdown and a bearish target of
$12, coinciding nicely with the $12 support level.  Look to
initiate new positions on a failed rally at intraday resistance,
either at $19.50 or even better, between $20.00-20.75.  We are
setting our stop initially at $21.

Comments

Biotechnology stocks entered the new week in much the same way
as they left last week.  In the red.  With the BTK index falling
to just above the $450 level, it is no wonder that weak stocks in
the sector like HGSI took a beating in the early going.  Adding
to the bearish picture for HGSI is the fact that the stock barely
participated in the rebound off the lows and fell again going into
the close.  The heavy selling volume tells the story of the
underlying weakness of HGSI, making the approach of selling the
rallies look that much more appealing.  Use intraday resistance
at $18 and then $19 as potential entry points, moving stops down
to $20.  Of course a break below the $17.25 level (Monday's lows)
can also be used for fresh entries, with a confirming trigger
being the BTK index breaking below the $450 level.

*** April contracts expire in less than 2 weeks ***

BUY PUT APR-17*HQI-PW OI=609 at $1.10 SL=0.50
BUY PUT MAY-17 HQI-QW OI=159 at $1.95 SL=1.00

Average Daily Volume = 2.78 mln



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**************
TRADERS CORNER
**************

Candlestick Charting 101 - Part II
by Mark Phillips
mphillips@OptionInvestor.com

After suffering through my basic introduction to the concept of
candlestick charts last week, I'm sure most of you are champing
at the bit to dive into various candle patterns.  Not only will
I show you how to recognize the individual patterns that are
unique to this form of charting, but hopefully I can help you
to understand how to interpret these patterns for fun and
profit.

This will not, by any means, be a comprehensive treatise on the
subject of Candle Stick charting.  Rather, my intention is to
provide a solid introduction into the subject with numerous
examples.  We'll cover many of the more common candle patterns,
commenting on their interpretation and hopefully showing how
to incorporate their use with some of the more common Western
analysis tools such as Stochastics and Bollinger bands.

For those that want a more structured and exhaustive treatment
on the subject of Candlestick charting, I would highly recommend
acquiring and reading Steve Nison's first book, ""Japanese
Candlestick Charting Techniques", as well as his follow-on book,
"Beyond Candlesticks".

I think that's enough preamble, and we have plenty of candle
patterns to talk about.  So without further ado, let's dive
right in, ok?

Doji
Possibly the most ubiquitous of the various candle patterns is
the Doji pattern, which consists of a small (or nonexistent) real
body, ideally with the open and close the same.  While the
classical definition of the Doji is that the open and the close
are the same, even a candle that has the open and close very
close can be viewed as a Doji.  The Doji pattern can come in many
shapes and sizes, as you can see from the graphic of the S&P 500
shown below.



 

Doji's can be the result of wide-ranging days (mid March), or
narrow-range days (late February), can come in the middle of
a directional move, or signal the end of a trend.  In its
simplest interpretation, a Doji candlestick indicates indecision,
with the both buyers and sellers unable to make any substantial
headway.  But the resolution of that indecision depends on the
price action leading up to that Doji, as well as the price
action immediately following the pattern.

By the way, see that candle (with the small red body) following
the 2 Doji's I've circled in late February?  It also can be
considered to be a Doji.  Three consecutive days of indecision
tell me that whichever way this market breaks, the move is likely
to be powerful.  And that it was!  Trading the breakout over the
intraday resistance would have been a profitable move, don't you
think?  Did anyone notice that the 3rd Doji was also an Inside
Day?  Those that have been paying attention to Jeff Bailey will
recognize that powerful setup without my guidance.

The classical interpretation of the Doji pattern is that the bulls
and bears are in equilibrium.  In a sideways trading market, the
Doji is a neutral pattern, because it reinforces the neutral state
of the market.  However, in an ascending market, the Doji pattern
can be an indication of a market turning point, since buyers have
apparently lost control of the market, due to their inability to
push the market higher.  It does not indicate that sellers have
gained control however, as they were not able to effect a close
substantially below the open.  

Due to the fact that Doji candles are indications of indecision,
they are most useful in special cases such as the Gravestone Doji
or as a portion of a multi-day pattern such as the Morning Star
or Evening Star.

Gravestone Doji
The Gravestone Doji derives its name from the fact that it appears
like a gravestone when viewed from the side.  This is a pattern
where the open and close are at the lo of the day.  This is a
market top reversal signal, and the longer the upper shadow the
more bearish the signal.



 

The 2 Gravetone Doji candles showed that the bulls were losing
momentum and were unable to push price through the highs set on
the prior 2 days.  With bullish momentum fading, the stage was
set for a reversal of trend, and following one more generic Doji,
the downward move got started, yielding a nearly $10 (33%) move
in a little less than 3 weeks.

Morning Star
The Doji is an important component of several multi-day patterns,
and the Morning Star pattern is one of the best.  It is composed
of three candles, beginning with a large red candle.  Follow that
with a Doji that gaps below the body of the red candle.
Completing the pattern is a candle with a white body that closes
well inside the body of the red candle.  Here's an example of the
pattern, in case my description is unclear.



 

See how the Morning Star pattern is followed by a sizeable rally,
immediately following a substantial decline?  This is precisely
why the Morning Star pattern is viewed as a major bottom-reversal
signal.  Bears need to cover (or at least tighten up those stops)
and bulls can start nibbling on new long positions.  Note that
this pattern can be formed with either a doji or just a
small-range candle as the second day.  But the pattern is more
bullish with a Doji in the middle of the pattern.

Evening Star
The Evening Star pattern is simply the mirror image of the Morning
Star.  It is composed of three candles, beginning with a large
white candle.  Follow that with a Doji that gaps above the body of
the white candle.  Completing the pattern is a candle with a red
body that closes well inside the body of the white candle.  Once
again, here's a graphic example.



 

Following with our mirror-image description, you can see how the
Evening Star pattern is followed by a significant selloff,
immediately following a substantial rally.  Just as the Morning
Star pattern is viewed as a major bottom-reversal signal, the
Evening Star is viewed as a major top-reversal signal.  Bulls
need to cover (or at least tighten up those stops) and bears can
start extending their claws.  Note that this pattern can also be
formed with either a doji or just a small-range candle as the
second day.  But the pattern is more bearish with a Doji in the
middle of the pattern.

That's all the time we have for this week.  Tune in next time and
we'll delve into more Candlestick patterns (Hammers, Hanging Men
and Shooting Stars, to name a few) that we can apply in our quest
for profits.  After we've plowed through a few more of the
classical patterns, we can start to integrate some of the
classical Western technical analysis tools to show how the
addition of Candle pattern recognition can improve our trading
results.

In the meantime, happy charting!

Mark


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