This chart came to my attention when I was looking at Thomas Bulkowski's site, which I highly recommend. He's written some books on technical analysis and does an excellent job. His site is a great source for pattern study and identification. This link should get you to his XLB chart from Thursday, August 6. http://thepatternsite.com/Blog.html#P6
I added a few pattern's to Bulkowski's chart. The main pattern is his Broadening Top (in blue, on my chart). After Data Point #4 (blue) is established, these things often make a run for the top of the pattern. The XLB began to do that, as he pointed out, but it broke below a Rising Wedge, then broke below the bottom of the Broadening Top. We can see how The Bears got pickled on that breakdown because, as it stood at the July low, it was:
1. A break of a Bear Flag
2. A break of a Rising Wedge
3. A break of a Broadening Top
Those July lows acted very much like a Wolfe Wave #5 Fakeout/Breakdown. It put Bulls and Bears alike "wrong-footed," then the XLB staged a Bullish Island Reversal and ripped it to the upside on a parabolic rally to the upper trendline of the Broadening Top.
In his analysis, Bulkowski speculated on Thursday that the XLB could break out to the upside on the jobs report Friday, which it certainly could have, but it didn't. It closed up on the day, but the session high was capped by the upper trendline of the Broadening Top.
4 comments:
Hi Melf
I'm trying to set up the Ichimoku chart you sometimes use but my settings do not give the same picture as on your chart. Would you mind specifying the settings you use?
Regards
Alex
actually, if you look at spx, it is forming similar broad top pattern. xlb just follows the index.
Good Morning, Alex,
In my charts, I make the Closing Price and the Chikou Span Invisible, which probably is why you're not getting the same picture. They confuse me, so I don't use them.
I also tweeked the recommended numbers for the Kijun-sen and Tenkan-sen. I use 8 and 21, respectively, because I like Fibonacci numbers and they're close to the recommended 9 and 26.
The following probably is more information than you wanted or needed, but this is the overview from my Metastock program:
Ichimoku Kinko Hyo: Overview
The Ichimoku Kinko Hyo indicator was developed by Goichi Hosoda, a Japanese newspaper writer, writing under the pen name "Ichimoku Sanjin." He developed this charting technique before World War II, and offered it to the public when he published his book in 1969.
Ichimoku translates as "a glance" or "one look." Kinko Hyo translates as "the table of equilibrium" or "balance table." Hence a chart displaying this indicator provides a broad look at the prices in a single view. You should be able to look at the chart and know at a glance whether to buy or sell.
Three key time periods are used to calculate the five individual plots used in the indicator. These times periods are based on the trading conditions at the time the indicator was created: Japan in the 1930's. At the time, a trading week was six days instead of the five days we are used to today. Some traders may wish to alter the time periods to reflect the change in trading days.
9 periods = one and a half weeks (now 7.5 periods. use 7 or 8)
26 periods = one month (now 22 periods)
52 periods = two months (now 44 periods)
The Ichimoku Kinko Hyo indicator is composed of the following five plots, in addition to the closing prices.
Tenkan-sen. The standard line. This plot provides signals when paired with the Kijun-sen. The default periods for this plot is 9. The calculation for this plot is (Highest High + Lowest Low)/2. The highest high is the highest high over the last specified number of time periods. By default, this is the highest high of the last 9 periods. The other highest highs and lowest lows are calculated the same way.
Kijun-sen. The turning line. This plot provides signals when paired with the Tenkan-sen. The default periods for this plot is 26. The calculation for this plot is also (Highest High + Lowest Low)/2. However, the values are taken from a 26-period time frame instead of a 9-period time frame.
Senkou Span A. The first span. This plot creates the Kumo (cloud) when paired with Senkou Span B. The default periods for this plot is 52. The calculation for this plot is (Tenkan-sen + Kijun-sen)/2.
Senkou Span B. The second span. This plot creates the Kumo (cloud) when paired with Senkou Span A. The default periods for this plot is 52. The calculation for this plot is (Highest High + Lowest Low)/2.
Chikou Span. The delayed line. This plot is simply the close plotted the desired number of time periods in the past. The default periods for this plot is 26. In this case, today's close would be plotted 26 days ago.
Good Morning, Hello,
Thanks for your observation. We'll look at that in this morning's post.
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