Tag Archives: CAC 40

Dilemma of dynamic patterns

Good day traders,

As the market would have it with me so often, the exact opposite of my sentiment usually happens. Ever since my last post, indices around the world have rallied hard. The sharp devaluation gave long-term players an opportunity to snap up bargains on the market. As we cross over to the latter half of the year, indices are either at or above their 200-day moving averages, and having made higher highs and higher lows after the scare in January. Unsurprisingly, price action over the last few months have developed a bottoming pattern of sorts: specifically, unconfirmed, inverted head-and-shoulders patterns are showing up on many charts. It may be a case of the breakdown from large, upright head-and-shoulders patterns resulting in a consolidation instead of further downside.

With every wek and month of upside, it does dent my confidence of the longer-term decline I am expecting. Being a long-term player is analogous to a huge ship’s maneuverability compared to a small speedboat: I cannot and will not change my outlook until way past the bottom. It is tempting to switch from a bearish to a bullish outlook now but I am still not convinced with the recent rally.The dilemma I face now is because of the presence of dynamic patterns that are suggesting upside to come. I use the term dynamic pattern to mean general price patterns that have a particular shape in recent history – these patterns do not have conventional names like the head and shoulders and others; or they may but with a certain “twist.” I will illustrate what I mean in the charts below.

The first chart is of the CAC 40. The turbulence late in 2014 produced a descending, broadening wedge pattern, which also turned out to be a inverted head and shoulders. Early in 2015, the market took off and the CAC 40 blasted off to new, major highs. Now, steer your eyes to the right half of the chart, and you will see a similar phenomenon. It is not so much the small, topping head and shoulders that matter but the similarity between the two huge, descending, broadening patterns. I have veered away from trading patterns in recent years but it is magnificent to see such huge patterns unfold, and even more important to gauge their sucess rates. Ditto for the STI and Hang Seng Index- albeit making reference to an inverted head and shoulders in 2011-2012.

A1

Moving on, I have the Dax. The dynamic pattern in the Dax starts with a good, long uptrend before a downward-biased contractional period. Then, price moves down in a classical a-b-c Elliot Wave retracement pattern. In this dynamic pattern I am identifying, the Dax then goes up and congests for a little while before flying up and away. Now, look to the right half of the chart, and see if you agree with my judgment of  the same phenomenon brewing. With such beauty in the charts, how can I ignore the case for upside?

The next chart is of the S&P 500. Bear in mind that I have highlighted the presence of a general, large, rounding pattern – a stalling in the long-term, multi-year bull run. Within that large pattern is wht we now see as a clearly-defined head and shoulders with a right shoulder breakout upwards some time in March of this year. Price is currently testing the head region. Take note of the smaller head and shoulders that is also undergoing a head test now. In this case, this dynamic pattern does not indicate anything since the head test is still ongoing.

a2

In the next few charts – FTSE 100, Hang Seng, and Russell 2000, you will see what I mean by the large, rounding, topping patterns strting to give way to what seems like a reversal, inverted head and shoulders. It is certainly not the first time I see such a phenomenon but my experience tells me it is ust about fifty-fifty where the market will head to next. Sometimes it carries on higher and proves the inverted head and shoulders to be correct – rendering the earlier head and shoulders to be invalid, or the market dives lower and proves the inverted head and shoulders (usually the smaller of the two) to be a false reversal indication. Tough call is it not? Such is the market!

a4 a5 a6

All in all, I am still wary of the multi-year bull run that has lost some steam in the last 2 years because the looming, gravely topping pattern is still intact; however, there could be short-term plays to the upside.

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

 

 

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End of Europe’s uptrend while America advances?

Good evening one and all,

While browsing through charts of my workstation, I noticed quite a difference between major European indices and American ones. The general picture of the European indices seems to be that of a high made in the middle of the year, then a collapse, followed by a quick recovery, then another fall, and a small recovery to where the markets stand now. American indices were tested when selling pressure came in a few weeks ago, but buyers came out fast and the indices made V-shaped recoveries. These V-shaped recoveries are quite reliable to be traded on: the buying pressure simply blasts the market back to where it was before the decline. What this all means to me – even as my previous sentences summarized the markets on both sides of the Atlantic. – is that US indices are still considered to be in their tremendously strong uptrends but European indices are looking quite “questionable” now – at least with regards to a long-term uptrend.

I will briefly say how I think the charts may be saying something about the general economic picture: If you consider the strength and shape of the uptrend of the US indices – and basic theory about how markets relate to one another internationally – it is quite obvious that US indices have been pulling the global indices along over the years – generally-speaking, of course; however, with my recent assessment of the charts of European indices, it seems to me like Europe may be facing harder headwinds soon. There are countless factors that can come into play – and I obviously do not want to go into them; not on this site at least –  and only when events come to pass can we look back and see everything play out on the charts. But it is something I will take note. American indices are definitely back on track, and there is no indication to me of any reason why American stocks will not continue higher.

In the first three charts below, I have the Dax, CAC 40, and the Footsie. The general picture is the same: a huge consolidation after a long and strong uptrend. The worrying thing is that the recent retracements cut deep, and the markets were not able to recover back to prior levels. This is very different from American indices that have shown healthy recoveries into the prevailing uptrend. I am not suggesting a crash in European indices – barring a global decline – but when I see such trends stall, it simply means more sideways trading in the months to come. Contrast with advancing US indices, Europe certainly should not be overweight in a portfolio.

Dax   Cac  ft

sp5

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

US leads, Europe testing highs

Evening all,

Another week of trading sees the S&P 500 dancing in 1700 territory. US markets have been proving to be very strong, and global markets are taking cue. European markets are now very near or at important previous highs. I look at the Dax, CAC 40, and FTSE 100.

The Dax is already trading past all-time highs. (As a side note, this is a classic example of the fundamentals being reflected in the chart. Germany is regarded as the strongest nation in the EU). 8100 is closest support. Whichever time frame you are on, the uptrend is very strong. I also do not see any reason why the Dax should not continue higher. The next few weeks of trading will show if the Dax can remain at such a stratospheric level.

dax

The footsie is also trading at all-time highs – albeit slightly below and not above like for the German bourse. However, I am seeing some room for downside in the Footsie. A V-shaped kind of pattern – different from a V-bottom – depicts recent price action. I am usually cautious of such a formation on the chart as it is usually followed by consolidation in the next few weeks. In the long-run, however, as a trend-follower, I like to see highs being tested.

ft

Next up, we have the CAC 40. Despite performing very badly in 2011 – returning down to test 2008 lows – CAC 40 has managed to recover to post-crash highs at the 4100 region. CAC 40 did run up there earlier in the year before succumbing to the June correction. Like the footsie, I see a V-shaped formation which is not supposed to be a very bullish sign. For now, I have to respect the resistance at the major high; though, if markets continue to move up convincingly, these bourses should take cue.

Cac

All in all, I continue to wave the bull flag because of the clear uptrend in major indices. The smaller European indices like Greece, Italy, and Spain may not paint the same picture as Germany’s; however, most other indices are on the same uptrend path from several years ago. In the short-term, majors highs are being tested, so the next few weeks should tell us if stocks are ready to soar to new heights. If not, this major high will send the market down for another correction like what we had in June.

Hope

Good day all,

Nothing much on equity charts meant I did not update much this week. Equity markets did well actually, with indices around the world posting small gains. European and american indices look quite good on the charts, with price action showing signs of a breakout from the base that all markets have been consolidating in. Asian markets (including our STI) do not look too good though. Following the title of this post entitled hope, I will upload some charts to show you all why the bullish tide may be coming in.

    

There are other charts I save on my workspace, but in general, the western equity charts look quite good; while the asian markets do not look too well. Next week should paint a better picture for us. I am really hoping for a recovery to put us on track for a multi-year bull run (that starts from 2009). My concern right now is that indices may well start falling from next week onwards. There is a technical argument for this since indices are still at the top of their consolidaton range – and not clearly above. Also, volume over the past two weeks has not been ideal. And the old school of thought is that we need volume to support any strong move. So it should not surprise us if markets start falling next week. However, as the title of this post states, I am hoping last week’s close near the top of consolidation ranges is a sign of bulls coming in to push the markets up and away.

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

Weak showing

Evening all,

Recently, the stock market has been weak, and indices all over the world have been sliding down. Over the last few weeks, the main theme I gathered from the papers was news of weakness in the global economy. That has probably been the main factor in the weak showing from equity markets. The prevailing debt problems in Greece always seem to pop up now and then, and not so positive data from the States has been causing selling pressure in the stock market.

As you know, I am holding a year-long bullish stance on the market. If  I do not remember wrongly, I even expected the STI to smell 3400. Now, the breather that I keep thinking the market has been taking has lasted for 2 months already. In April ’11, the STI was at the 3170-3200 region; now, the STI has just set a 3-month low at 3020. This is not good at all, especially with regards to my projection. My last two posts on the STI was showing potential bull flag patterns. Sadly, the STI has not surged up as I was hoping; instead, these flags are now invalid. With all the gloom out there, I decided to take a good look at the charts to see what I can make out of the recent weakness in the market.

The first chart below is the weekly candlestick chart of the STI. Right now the index is testing critical support at the bottom of the upward parallel channel. The last time we tested the bottom of the channel was in the first quarter of this year. I remember those days were trying times as I fought with my emotions – the chart told me that support was being tested, whereas my emotions were driven by the negative sentiment out there. In the end, the chart prevailed, and the STI staged a quick 6% rise to stay in the channel. Now, depending on how you draw your trendlines, the STI can actually be seen as having broken out of the channel. For me, I believe one should sometimes allow for volatility; therefore, I still believe the STI is testing support. Basic technical theory will suggest that now is a moment to buy in since we are at support. 

It is intersting to note that the STI has just fallen below the 50-week MA, and the 200-week MA is starting to slide down. These are certainly not bullish signs to take from a chart.

I have a some charts of different indices around the world. Take a look at them below. For quite a few of them, the indices seem to be at critical support levels too – which ties in with what I see on the STI’s chart.

   

In conclusion, I see many indices at an important point now. I am still a general bull, and every week I am hoping for a rebound. On the chart, it does seem to me like a rally is overdue. However, if the market is going to continue sliding south, as a chartist, I may have no choice but to drop my bullish stance. Let’s see how this goes.

Global indices analysis

Good evening everyone,

As always, I took a look at charts of different indices around the world over my weekend. I have some words to add on, coupled with charts to show you all my technical analysis.

In quite a few indices, I see parallel channels; most channels slant downwards, with the exception of a few indices from Asia. In the US indices, I have found confirmed head and shoulders patterns with downward breakouts. If you were to view a post I put up a week ago, you will see those charts.

After important jobs data came out in the States on Friday, markets continued their small “pre-labour-day-week-holiday” (US) rally, with the Dow now at 10400, 400 points above the closely-watched 10000 level. There are several people on the net who have ranted about how the seemingly slightly optimistic report should not be taken at face value; rather, the US recovery was continuing on a downtrend if one were to dig deeper into the numbers and mathematics of employment in the States. Since this blog is about technical analysis, I shall not talk about fundamentals of the US economy. For that, there are many other sites you may want to visit : ) .

My analysis of the charts of Asian bourses tell me that the recent surge should spillover to the week ahead, however, it should only last for a few days. I am still firm on my bearish stance of the global stock markets.

Here are a couple of charts showing patterns I have identified on charts.

As you can see, these indices are close to resistance from patterns and the 200day MA. I think this is significant because it shows that there is still some room for upside, but with resistance very close, the markets should reverse, thus my continued bearish stance on the markets.

As for the US market, I believe they should also lead the way down; and the slightly optimistic jobs report should hold no water. In the chart below, you will see a head and shoulders pattern in the DJTA. After the breakout, price reversed and shot straight up – exactly the kind of thing fundamental hardliners will use to show us why technical analysis is rubbish! In the day and age that we live in now, so many people around the world would have spotted such a popular, basic technical analysis pattern. If many people know something, that something will slowly fail to work. In other words, this pattern will not work often as basic technical theory suggests. So anyway, we take what we see on the chart. Now, I would consider the DJTA to be experiencing a “head test”. The head acts like a resistance region, so failure to clear the head would mean downside. With my general bearish posture on the general markets, I find this head test occurring at a good time.

Other US indices closed better than the transportation average; however, indicators like the Stochastics and William’s %R are in grossly overbought territory, and I would be looking for the hook downwards in those oscillators.

So that is all for tonight. In short, I believe the Asian markets should inch up a little for at least tomorrow, but I still do not see why there should be prolonged buying pressure. The only concern I harbour is that indices in downward parallel channels can break up out of their channels. Who says they cannot? Naturally a chartist should look for downside when an instrument hits resistance, however, if a breakout happens, then the whole story will change. An interesting thing to note in the coming weeks is that the summer holidays in the States will end, and trading activity will increase on Wall Street.

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.