Both umbrella and inverted umbrella are candlesticks indicating high decision in the market; and are often interpreted as reversal patterns. Both are single candlestick patterns having a long shadow. Umbrella candlestick is a doji having a long lower shadow (thus resembles an umbrella) and inverted umbrella candlestick is a doji having a long upper shadow.


Requirements of umbrella and inverted umbrella candlestick patterns:

• The real body of the candlestick should be very small, preferably just a horizontal line.
• For umbrella formation, there should be a very long lower shadow and no upper shadow.
• For inverted umbrella formation, there should be a very long upper shadow and no lower shadow.

Umbrella candlestick forms when the sellers dominate the day to drive the price to low levels but the buyers fight back to close the day at or very close to the opening price, which is also the highest price of the day. Inverted umbrella forms when buyers dominate the day but sellers fight back to close at the opening price, which is also the lowest price of the day.

Both umbrella and inverted umbrella are considered bullish reversal patterns when they are formed at the end of a significant downtrend or after a very long bearish candlestick. Both are considered bearish reversal patterns when formed at the end of a significant uptrend or after a very long bullish candlestick. They are also important reversal indicators when formed in a support or resistance level. With both umbrella and inverted umbrella, traders should always look for confirmation of trend change.

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Ultimate oscillator is a useful technical indicator developed by Larry Williams and first described in 1985. It was developed to avoid the false signals generated by many indicators when used in different time periods. This oscillator represents a stock's price action during three different time frames. Ultimate oscillator is a weighted average of three oscillators representing short, intermediate, and long term market cycles or the 7, 14 and 28 periods. The shorter periods are included within the longer period; that is, the 28 period time-frame comprises the 14 and 7 period. Thus shorter periods get more weightage.

Ultimate oscillator is a range bound oscillator, having values ranging from 0 to 100. Like relative strength indicator or RSI, values below 30 are considered oversold and values above 70 are considered overbought. The center line of 50 is often used to find trend changes.

Traders can generate buy and sell signals using ultimate oscillator indicator. Remember, the oscillator offers much better results when used with other indicators.

• Buy signals are generated when positive divergence of the oscillator and price occurs; and sell signals are generated when negative divergence occurs.
• Buy signals are also generated when the oscillator falls below 30 and then rises back above previous high during the bullish divergence.
• Similarly sell signals are generated when the oscillator rises above and then falls back below previous low during the bearish divergence.
• Traders should close long positions when the oscillator rises above 70 or when the oscillator rises above 50 and then falls below 45.
• Traders should close short positions when the oscillator falls below 30.

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ETF liquidation is simply the shutting down of an Exchange Traded Fund. The fund stops trading on listed markets at a point of time, the holdings are then liquidated to pay money to the investors holding the shares. The recent trend of ETF liquidation started in early 2008 and has resulted in the shrinking of the entire ETF market.

Most ETF liquidations occur because of the fact that they are not profitable to the company which created them. This low profitability can be due to many reasons.

• Lack of investor interest.
• Lack of liquidity and very low trading volume.
• Lack of sufficient funds (low total asset value) which makes it difficult to manage the fund at low profit margins.
• Other reasons like tracking a narrow sector/index, high expense ratio, high competition, tracking error, overall market trend.

When an exchange traded fund undergoes liquidation, it informs the market it is listed in and the investors about the day on which the trade will cease. Trader shareholders have two options, they can either sell the shares before the last trade date or hold the shares for receiving the money from the fund manager after the underlying shares are sold. The liquidation distribution amount is calculated based on the net asset value (NAV) of the ETF.

If the ETFs are held in a taxable account, then the liquidation can create a tax amount. The investors may have to pay the capital gain taxes, either at long-term capital gains rate or short-term ordinary income tax rate.

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The Week Ahead: The U.S. trade deficit expanded 18% in September the biggest one month increase in 10 years while consumer sentiment took an unexpected drop. Again markets shrugged off the news as stocks rose for the second straight week. On Monday, Ben Bernanke will speak in New York City and retail sales and business inventories are released. The PPI and Industrial Production numbers are due out on Tuesday. The CPI and housing starts data are released Wednesday. The leading indicators for October come out Thursday.

Stocks to Watch: Copa Holdings (CPA) beat Q3 earnings from a year ago despite a 7% drop in revenues as the stock reached 2 year highs. Esco Technologies (ESE), an engineering firm, also showed better numbers versus last year but fell 11% because of a poor outlook for 2010. Assured Guaranty (AGO) had its debt downgraded by Moody's, but rose 20% as J.P. Morgan issued an overweight rating on the stock. Two new issues to track: Dollar General (DG) and Rue 21 Inc. (RUE), a teen clothing retailer, both successfully traded up on Friday.

Special Note: Stocks here in the U.S. and abroad continue diverging behavior. Examples include the Dow Industrials at new 2009 high but the Dow Transports and Utilites not confirming. Nasdaq 100 Index at new high but Russell 2000 not confirming. Hang Seng Index at new high, but Shanghai Composite and Japan's Nikkei Index not confirming. London FTSE at new high but Paris CAC-40 and Frankfurt Dax Index not confirming and many others. The implications of this behavior are significant and will likely determine the direction stocks will take between now and year end. More next week.

Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.

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Panic selling is characterized by frenzied selling of investments with least regard to the prices obtained. This very often results in a great decline in the price of the instrument; panic selling is spurred by anxiety and emotion, rather than by discretion.

Panic selling usually starts with a strong extended bull market. Some securities/sectors become the leaders of this bullish trend, they are extensively highlighted by the media, and they make the investors/traders feel like they will never drop in value (eg: the dot com companies of the dot com bubble period). In due time the traders will realize that the market/security is not as strong as they expected or is overvalued; and is going to fall. A bad news or under achievement info triggers the panic selling and eventually markets fall.

There are many reasons for panic selling, most of which are related to human behavior.

• Fear of loss - Optimism and greed are the main human emotions driving the markets to new highs. But in higher levels, the optimism diminishes and doubts about the future arise. This leads to fear of losing money and the tendency to close off the positions as early as possible.
• Fear of missing an opportunity - many times this emotion is stronger than fear of loss. Most investors want to beat all others around them, thus quick and senseless decisions are often made.
• Search for leadership - Trusting a few media persons or market gurus without doing your own research can be devastating, because as they fail all (most) followers fail.
• Laziness - Investors and traders often forget to do the basic trading fundamentals like proper portfolio management and risk management.

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Bearish thrusting is a bearish trend continuation candlestick pattern indicating the continuation of an existing downtrend after a bullish day. It is a two candlestick formation which closely resembles bearish in-neck pattern and bullish piercing line pattern. Bearish thrusting is a weak candlestick pattern.


Requirements of bearish thrusting candlestick pattern include,

• The pattern should form in a downtrend.
• The first day is a long bearish day characterized by a black or colored candlestick.
• The second day is a bullish day characterized by a white or colorless candlestick which opens a gap below but closes within the real-body of the first day candlestick.
• The close of second day candlestick must not exceed the mid-point of the first day candlestick; if it exceeds the same, it forms bullish piercing line pattern - a strong bullish reversal formation.

Bearish thrusting candlestick pattern is the result of a failed rally in a down market. As the second candlestick does not exceed the mid-point of first candlestick, the downtrend is expected to continue.

Bearish thrusting pattern is less reliable than bearish in-neck and on-neck formations. Confirmation of the trend continuation is required, which can be a bearish candlestick, a gap down opening or a lower close on the next trading day.

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Andrews' pitchfork, originally named Median Line Studies, is a well known trend indicator which primarily shows support and resistance levels of an existing trend. The indicator was developed by Dr. Alan H. Andrews and with its median and side lines it resembles the farmers' pitchfork. Andrews' pitchfork is a simple indicator which can be used to enter buy and sell signals as well as to evaluate overall market cycles and trend changes.


Andrews' pitchfork consists of three lines, a median or middle line, an upper resistance line and a lower support line. The lines are plotted to the future from an identified trend. The middle line originates from a peak or trough and passes through the midpoint of the distance between another peak and trough, from which the upper and lower lines start respectively and run parallel to the median line. Most price movements occur within the channel created by the indicator.

Andrews' pitchfork can be used to trade within the lines and outside the lines. When trading within the lines, the upper line should be taken as the resistance and lower line as the support. Sell signals can be entered when the price pulls back from the upper resistance line and buy signals entered when the price reverses from lower support levels. The price movements outside the lines are considered short-lived and trading can be done accordingly.

According to Andrews, most of the price movements (up to 80%) occur towards the median line and this constitutes the long-term trend. But if price fails to show a trend towards the median line (from either side), it indicates a change of trend in a new direction; if the price is now above median line, it is a new bullish trend and if the price is below median line, it is a new bearish trend. Many traders also use Andrews' pitchfork to forecast the size of the next trend, based on the size of the previous trend.

Note: The indicator offers better results when it is confirmed by other price and volume indicators.

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