When Steve Nison says candlestick charts are telling him not to buy stocks, people might want to listen.

Nison is widely known as the person who introduced candlesticks to the West. He has an M.B.A. in finance, but he started focusing on technical analysis — more than 30 years ago while at brokerage E.F. Hutton. In the late 1980s, while at Merrill Lynch, Nison met a Japanese broker who used terms like “doji” and “harami” in conversations with clients. Intrigued, he wrote a short article for Futures magazine on the more than 200-year-old Japanese technique in 1989.

Now candlestick charts — which include information about an investment’s movement during a trading day, rather than just its closing price — are standard on most charting services, and many Western chartists call them their preferred way of mapping the market.

Read: 7 key candlestick reversal patterns

Today, Nison considers himself more educator than technical analyst. But he still follows markets closely, and he says that following a summer spike in volatility and increased uncertainty about the strength of the global economy as the Federal Reserve prepares for the first interest rate hike since 2006, a number of bearish signals in the S&P 500 are warning that the 6 1/2-year bull market for stocks may have run its course.

FactSet

“I got out [of stocks] a few months ago,” Nison said in a recent interview with MarketWatch.

Technical analysis: Verity or voodoo?

Technical analysis, put simply, is a system some use to predict future changes in investment prices based on past movements — typically by looking at charts, but also through the mathematical analysis of price and volume data.

Some investors and strategists scoff at technical analysis, saying it’s mostly voodoo. Others say it’s the only pure form of market analysis: While fundamental analysis focuses on the variables that can influence an investment’s price, they argue, technical analysis examines the price itself.

In this context, some chart enthusiasts say the candlestick chart improves on other charting data, which focuses mainly on closing prices. The candlestick adds data about how the market behaved during each trading session.

Steven Nison sees the market by candlelight. Candlecharts.com

The best-selling product of Nison’s company, Candlecharts.com, is software that automatically scans for prominent candlestick patterns. He says business picks up when uncertainty increases, and slows during extended bull markets.

“As a general rule, when the market goes up, people don’t feel like they need as much help,” Nison said. “The tougher the market, the more the need for education.”

As the Wall Street saying goes, it’s not the news that’s important to investors. It’s how prices react to the news. And candlestick charts, Nison would argue, are the best way to gauge that because they include more data than other charting methods.

Bears have engulfed bulls at key resistance

Today’s charts are concerning because of the four “bearish engulfing” candlestick patterns that have appeared since the S&P 500 peaked in May, according to Nison. In a “bearish engulfing,” the S&P 500 closes at a recent high, opens higher the next day, then does an about-face to close back below the previous session’s open. The pattern, Nison explains, shows how “selling pressure overwhelms buying force.”

Recent bearish candlestick patterns stand out to Nison because they appeared at what he called one of his favorite Western, “non-candlestick” technical indicators: the horizontal resistance, or support, line. Today, he believes that line is around 2,150 for the S&P 500, which has approached that level several times since May but not crossed it.

“If you buy now, you’re adding to positions right at resistance,” Nison said. “Why would you do that?”

Nison prefers to do what many investors, including Warren Buffett, say not to do: He would rather buy after a rally than a dip, when everyone else is buying, rather than selling — in this case meaning he’d like to see a weekly close above resistance, as defined by the top horizontal line in the chart above, about 3% above current levels.

“I like investing on breakouts,” Nison said, using a term that indicates that an investment has passed a resistance level. “I would rather buy at higher prices. If you buy on a breakout, you’ve increased the chance that an investment will work out.”

While this strategy might decrease potential returns because of the higher price, he said, it also lowers risk because resistance has already been cleared. A textbook example of when to buy on a breakout occurred in the spring of 2013, according to Nison, when the S&P 500 closed above a 13-year-long resistance line. The index is up around 30% since.

What would keep Nison bullish, meanwhile, would be if previous resistance around 2,130 provides support for a pullback. (See Chart 2, below.) If 2,130 failed to hold, Nison would get out.

Chart 2 FactSet

“There is always a price that says I’m wrong,” Nison said. “I’ll have a hard stop [at that price] and I won’t second-guess myself.” A “hard stop” refers to a stop-loss order, which in this case would be an order to close out the position if the S&P 500 falls below 2,130 — an order he won’t change no matter how the index acts around that price.

“Once you have a trade in, and it’s done, you shouldn’t look back,” Nison said.

While resistance and support levels can be seen without candlestick charts using standard High-Low-Close bar charts, or even just closing prices, those charts don’t show the “bearish engulfing” patterns that accompany resistance because they don’t detail the intraday movements that underpin opening and closing prices. (See Chart 3, below.)

“It’s more visual” with candlesticks, Nison said. “Immediately, you know bears are in charge.”

Chart 3 FactSet

As impressive as the S&P 500’s rally has been off support at August and September lows, when it approached 1,850 for the first time in nearly a year, buying before the market wiped away the four “bearish engulfings” would not have been a very attractive risk-versus-reward scenario, according to Nison.

That, Nison said, is his most important trade-management rule: Check how much you can make, using resistance levels as a proxy for a sale, compared with how much you stand to lose if your stop-loss order is triggered below support, before you trade, and make sure the difference is acceptable.

Those who don’t agree might want to meet Joe Campbell.