Stripnomics

In the Japanese culture, three black crows are a symbol of Death!  Well, not really… I just made that up but it sure sounds plausible huh?

Anyhow, in Japanese Candlestick Charting it does sort of mean death. Death by price. The chart below is a candlestick chart of PLD for the last 100 days, where each candle represents a day:

CLICK TO ENLARGE

Red Candles are traditionally black, hence 3 Black Crows. Green candles are traditionally white. Remember, the red days represent days when the market closed lower than it opened. Green days represent days when the market closed higher than it opened. The gaps or overlaps between consecutive candles represent changes between days (overnight).

The fat parts of the candles are the bodies and represent the change between the open and close. The skinny parts represent trading outside of the open or close.

You will notice that for the past 3 days (at the end of the chart) we had consecutive falling prices between open and close. This formation is known as “3 Black Crows”. According to author Steve Nilson, the “3 Black Crows” is a bearish sign of lower prices to come. Also, between each candle we had downward gaps which is also a bearish sign. 

I like candlestick charting because it shows market emotion. I think it is more accurate than normal in this historic time. Not only is the market in a massive downturn but the rules have changed. Since short selling is banned in many stocks, we can watch price action that is completely absent of the influence of shortsellers. Shortsellers distort true price action because they are strictly speculating and are constantly covering positions to hedge risk. Now, the market for PLD only takes place between 2 types of people: (i) those who believe now that the stock will rise in price (BUYERS) and (ii) those who had believed the stock would rise in price but don’t anymore (SELLERS). There is only one thing that differentiates these groups: hope. As hope is lost, so is price.

In a sense, this market is perfect. All transactions occur between individuals who only play the game in one direction. All contestants that play the game in two directions (SPECULATORS) are eliminated. The only way that price can rise in this environment is if the BUYERS overwhelm the SELLERS. Neither party gets outside help from the SPECULATORS.

I predict that Monday will be another down day. Although Japanse candlesticks are very good at determining direction, they are not good at determining extent of a move. Nevertheless, I expect that it will be a large move and will likely be bigger than any of the previous three days. If you look at recent volume, you’ll see that it picks up at the end of the day. That’s because Sellers are losing hope with time… losing hope that price will rise. Here is a 5-minute chart of Friday’s action:

CLICK TO ENLARGE

I think there is an attempt at price manipulation early on in the day. Look at the volume and judge for yourself.

The only support that I see is about where we are now, which coincides with the bottom of lower tail of the green candle on Thursday, September 18th. I don’t see support holding up given fundamentals of the company and the other Western technical indicators that suggest lower prices. If I had to venture a guess, I’d say we will go below 30 tomorrow, possibly much more.

The alternative would be a dramatic bounce from this level. Unlikely, I think. Asia is down quite a bit right now.

This entry was posted on Sunday, October 5th, 2008 at 8:52 pm and is filed under Economics, ProLogis (PLD), Trading. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.