Stock Trading Opportunities Under DoubleTop and Candlestick Gaps (Update)

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Update:  25 December 2018

The dreadful 1/2 day trading on Christmas Eve has seen DOW index wiped off around 650 points or 3% from 22, 445. The index now stood at around 21,800. The nasty Christmas Eve fall covered up another 2 of the candlestick gaps, namely Nrs 10 & 11 as shown in the attached chart. 

(Doubleclick the chart to enlarge)

This 21,800 level is about 800 points from 21,000 or just slightly more than 1,300 from 20,500, which is 2 times the height of the Double Top Channel. According to conventional wisdom in technical charting groups, 20,500 to 21,000 would be the likely range for DOW to make a good rebounce to retest the resistances and the highs again.


Update: 22 December 2018

Out of the 15 candlestick gaps create after Trump announced his candidacy for President to the date DOW completed the Double Top, 4 candlestick gaps, namely Nr. 12,13,14 &15 as shown in this attached chart has been covered. There are still 11 more candlestick gaps left to be covered. (Double Click Chart to Enlarge)

Update:  20 December 2018

An Excel sheet was built to determine just exactly how many candlestick gaps were created between the time Trump announced his candidacy for Presidency (around early 2016)  to the present date.  We were surprised to get the following results:-

	Date	Gap low	Gap high	Gap size
1	Feb-12-16	15,974	16,012	38
2	Jun-28-16	17,410	17,456	46
3	Jun-29-16	17,705	17,712	7
4	Nov-04-16	17,987	17,995	8
5	Nov-21-16	18,961	18,963	2
6	Feb-02-17	19,923	19,964	41
7	Feb-10-17	20,298	20,323	25
8	May-19-17	20,857	20,860	3
9	Jul-11-17	21,442	21,468	26
10	Sep-08-17	21,847	21,928	81
11	Sep-11-17	22,067	22,087	20
12	Sep-29-17	22,406	22,416	10
13	Oct-02-17	22,559	22,563	4
14	Oct-17-17	23,002	23,087	85
15	Oct-19-17	23,167	23,202	35

There were a total of 15 candlestick gaps created over one and half years,  between Feb 2016 to Oct 2017.  The candlestick gap size ranges between 2 points to 85 points.  None of these are run-away gaps and therefore,  they are likely to be covered up sooner or later.

(double click for enlarge picture)

It is to be noted that gap-15 created on Oct-17-2017 has just been covered up by yesterday's market fall where DOW lost about 350 points or 1.51%.  The fall also broke the support at 23,500 and complete the forming of the double top pattern which often signify the start of the bear market.  DOW's next target will be around 21,000.

8 December 2018

There are lot of posts in the Net  written about DoubleTop and Candlestick Gaps stock trading patterns.  These patterns traditionally offer trading opportunities where one can determine how the stock would react in the coming days or months.  

Presently,  DOW has created 4 candlestick gaps and about to form a Double Top after May 2017 as shown attached.  This article will discuss how one could seize the opportunity to trade the stocks and earn or save some money in stock tradings.

What is a DoubleTop?

DoubleTop is a trading pattern formed in the chart where prices of the stocks or indexes make two peaks over a period of at least 2 months with a usual price difference of less than 5% as shown in the above chart.   

The occurrence of DoubleTop pattern shows that the traders are not willing to trade above  the highest level attained as they do not  have confidence that the price will continue to go higher than that "highest level".   The next step these traders will take is to liquidate their position,  waiting for opportunity to sell their holdings into the strength of the market.

What is a Candlestick Gap?

Candlestick gap is another trading pattern that registered the willingness of the traders to push the price higher in the coming days or weeks or even years when there is a  good news.  For example,  if there is a significant event such as a company restructuring that attracts 10 or 20 times the trading volumes,  the market wisdom is to expect the price to hold above the gap price for at least 2 or more years.  This candlestick gap is often termed as “runaway” gaps.   There are also other types of candlestick gap patterns.

What happened in DOW recently?

DOW has created a total of about 4 candlestick gaps after May 2017 although there are also other candlestick gaps created before that.

The first (Gap 1 shown in chart)  was on 19 May 2017 where the market was told about good economic reports of declining jobless rate and also strong profit growth in  Wal-Mart Store and many other US companies having businesses overseas.

Then Janet,  the Chair of Fed,  reported that the US economy was strong enough to absorb gradual rate increases over the next few years in mid July 2017.  This propelled the stock to make all time high to close 21,532 with another candlestick gap (gap 2)  created.

After that,  some similar and  significant events also happened about the economic growth in the other candlestick gaps when stock price jumped to make historical high.  However, none of the 4 candlestick gaps have attracted significant changes in trading volume,  which means these candlesticks are just "ordinary" candlestick gaps which would be “covered” up within a period of less than 2 years.

As for the DoubleTop formation,  Apple announced on 30 Jan 2018 that it was cutting production of iPhone X by half from 40 million units to 20 million units.  This surprise announcement put a “lid” on the stock prices and the market remained stagnant for the next 9 months.  In-between,  US-China Trade War spooked the market.  This latest DoubleTop formation will be completed when  DOW falls below 23,500 in the coming weeks as indicated in the following chart.

Where do we expect DOW to go Next?

Should DOW fall below 23,500,   completing the DoubleTop formation,  the traditional market wisdom is to expect DOW to  fall to about 21,000,  which would officiate DOW entering the  Bear Market territories,  ending the 9-year bull market which started from March 2009.    DOW will also cover up all the 4 candlestick gaps described above.  

Whether DOW will continue to fall to cover the other candlestick gaps created before May 2018 is anybody's guess at the moment. 

Disclaimer:  This article is for information and  educational purposes.   Readers are advised to  conduct their own research and study to make their  own investment decisions.

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