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The Kingdom of TSP
The Dark Cloud
(what goes up has to come down)
While the market is going up, it is time to prepare for the following bearish primary movement, which is sure to come. It may be in weeks, months or years. In 2005 the movement change has been within month(s).
According to The Dow Theory:
The Primary Bear Market - Stage 1 - Is Distribution.
Just as accumulation is the hallmark of the first stage of a primary bull market, distribution marks the beginning of a bear market. As the "smart money" begins to realize that business conditions are not quite as good as once thought, they start to sell stocks. The public is still involved in the market at this stage and become willing buyers. There is little in the headlines to indicate a bear market is at hand and general business conditions remain good. However, stocks begin to lose a bit of their luster and the decline begins to take hold.
While the market declines, there is little belief that a bear market has started and most forecasters remain bullish. After a moderate decline, there is a reaction rally (secondary move) that retraces a portion of the decline (classic: the period after 09/12/05).
In reviewing the S$P 500 and the last four peaks: June, August, September, and October.
See StockChart.com: S&P500 Large Cap Index ($SPX)
Link ---->
http://tinyurl.com/6a2eu
A "dark cloud" or a variation could be identified in each of the four prior peaks, which is a candlestick reversal signal after an uptrend, warning of "rainy days" ahead. The dark cloud was not text book, but it could be identified within 1 to several days when the uptrend hit resistance and prices started to move sideways.
The long white candlestick indicated that buyers were in control, which is bullish.
The long dark candle stick indicates that sellers were in control which is bearish
Noted that sometimes the dark candle formation may be one or two days, but a higher high is not re-established.
There are two other indicators that would coincide with a dark cloud: the MACD trend and the signal on the slow-stochasitics.