Kicker Signal Pattern

KICKER SIGNAL (Keri Ashi)

Description

The Kicker signal is the strongest signal of all the major signals. It demonstrates a dramatic change in investor sentiment. Some occurrence caused a violent change in the direction of price. Usually, a surprise news item or a major world/ sector event is the cause of this type of move. The signal illustrates such a dramatic change in the current direction that the new direction will persist with strength for a good while. On a daily chart, that time frame is usually two to three weeks.

While the entry strategy after most bullish or bearish signals requires con­firmed buying or selling, the Kicker signal does not require confirmation. The magnitude of the reversal resulting from a Kicker signal does not preclude some immediate profit taking. Even on a pullback, after a Kicker signal has altered the trend, it is usually safe to buy after a Bull Kicker or to sell into buying strength after a Bear Kicker. The Kicker Signal works equally well in both directions. The occurrence of a Kicker Signal in an overbought or oversold condition magnifies its relevance. It is formed by two candles. The first candle opens and moves in the direction of the current trend. The second candle opens at the same open of the previous day, a gap open, and continues in the opposite direction of the previous day’s candle. The bodies of the candles are opposite colors. This formation is indicative of a dramatic change in investor sentiment. The candlesticks visually depict the magnitude of the change.

There is one caveat to this signal. If the next day prices gap back the other way, liquidate the trade immediately This does not happen very often, but when it does, get out immediately. This usually means the event, which caused the Kicker signal, has been corrected.

A Kicker signal can also be created by a change of recommendation by a major brokerage firm. Although the announcement has created the signal, usu­ally the strength in that scenario may not be as relevant. Be more diligent in watching for selling indicators to occur. The uptrend may not possess as much strength as a signal created by announcements or events that would change the fundamental outlook.

Criteria

1.    The first day’s open and the second day’s open are the same or gaps beyond the previous open.. The price movement is in opposite directions from the opening price.

2.   The trend has no relevance in a kicker situation.

3.   The signal is usually formed by surprise news before or after market hours.

4.   The price never retraces into the previous day’s trading range.

Signal Enhancements

1.    The longer the candles, the more dramatic the price reversal.

2.    Opening from yesterdays close to yesterday’s open already is a gap. Addi­tionally, gapping away from the previous day’s open further enhances the reversal.

Witnessing a Kicker signal in an index provides valuable information. Some­thing has happened in an industry/sector that is going to affect a number of stocks participating in that index. Whatever news or event causing the Kicker signal will make bullish signals in individual stocks in that sector that much more effective. As viewed in Fig. 2-79, the Merrill Lynch Internet Holdings index (HHH), a Kicker signal in oversold condition indicated the entire sector had information that will affect a number of stocks.

The true Kicker signal does not have shadows on the body. The gap in price, going in the opposite direction, should open and immediately move away from the previous candle. However, the presence of a shadow should not ne­gate the overall analysis of the signal.

Even when a shadow appears on the new candle, such as in Fig. 2-80, the Alamosa Holdings Inc. chart, the result should still be obvious. The investor sentiment has changed dramatically. The shadow at the bottom of the bullish candle should not deter from the analysis that an uptrend should be starting with force.

The signal is considered more effective when the bodies are both long bodies. A long body formation to the downside illustrates strong investor sentiment in the bearish direction. A long body bullish candle now has double connotation. First, the price had to gap up the full length of the black body candle. Secondly, once that gap up occurred, the buying force was shown to have continued with strength.

The effect of a Kicker signal should not be disregarded if one of the two bodies forming a signal is smaller than the other. The result remains the same.

The investor sentiment made the price gap in the other direction and proceeded in that opposite direction.

Technically, a Spinning Top or a Doji with black bodies, followed by a gap- up long bullish body could be considered a Kicker signal. While that pattern is just as effective for identifying a strong reversal it would not necessarily fit into the description of a Kicker signal. The long bodies better define the Kicker signal.

Fig. 2-81, The Alkermes Inc. chart shows the downtrend was progressing with reasonable strength. Whatever news announcement or event that occurred made the new sentiment very bullish.

Fig. 2-82, the Zales Corp. chart demonstrates that both candles do not have to be large candles, the kicker signal still reveals a definite change of the trend.

The magnitude of the gap, above the previous days open, in a bullish candle has great relevance. The gap up in price, followed immediately by added buy­ing, clearly reveals the strength in which buyers wanted to get into a position.

Illustrated in Fig. 2-83, the Macromedia Inc. chart, is a price trend that clearly- had no upward bias until the gap up Kicker signal occurred. As mentioned previously, buying at any price during the next few days should be profitable. Some profit taking is likely to occur after a big move to the upside. However, the signal itself illustrates a dramatic change in investor sentiment. That change will not disappear very soon. It can be anticipated that there will be a few weeks to the uptrend.

The Kicker signal works equally as well to the downside as it does to the up­side. As illustrated in Fig. 2-84, the Motorola Inc. chart, the uptrend was imme­diately terminated with a gap down in price below the previous days open. The continuation of the selling revealed that the downtrend was going to persist. Understanding the elements forming a Kicker signal allows the candlestick investor to make immediate decisions. An investor that may have been long Motorola Inc., seeing the gap-down open well below the previous days open should have the insight to close the long position immediately. Rarely will a news announcement produce a dramatic gap down open, then see the resum­ing of the current trend. The results of that dramatic gap-down will usually be a continuation of selling.

Kicker signals produce powerful moves as well as high probability moves. They do not occur very often. When they do occur, they should be analyzed immedi­ately and exploited. They will produce a high percentage of not only correct trades but also very profitable trades.