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The Chart Pattern Indicator is a market tool developed by Thomas Bulkowski and updated on its website thepatternsite.com.
The Chart Pattern Indicator calculates the ratio of the total number of bullish patterns to the total number of bullish and bearish patterns for approximately 500 U.S. stocks. The result is expressed as a percentage. The idea is that if few bullish patterns appear near market tops or more appear near market bottom, then the market (S&P 500 for example) is likely to turn.
The bullishness or bearishness of a stock is determined by a breakout method called NR7 chart pattern. The breakout day occurs when a stock closes above the highest peak (bullish pattern) or below the lowest valley (bearish pattern) within 7 days; the peak and valley are determined by the NR7 chart pattern.
NR7 is a candlestick, which occurs on bars that have the narrowest range of the last seven bars. A range is calculated by subtracting the high price from the low price.
This object downloads historical CPI values and associates the data with "_CPI_Patterns" ticker symbol. The bull count or the number of bullish patterns is stored in the Volume field, while the bear count or the number of bearish patterns is stored in the open interest field.
Thomas Bulkowski uses a 65 and 35 as thresholds, which means that the chart pattern indicator is bullish when its value is higher than 65 and bearish when its value is lower than 35.
Important: This indicator should only be used with a weekly timeframe; daily signals are not reliable. For more information, go to http://www.thepatternsite.com/CPI.html
Note that you can build your own CPI indicator using the Composite plug-in of QuantShare.
