Tag Archives: head and shoulders

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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Battered, concussed, and now, done for?

Hello traders/investors,

It has been a very long time since my last post. Nevertheless, it should not come as a surprise if you have read my last post titled “The conclusion of the matter“. In the space of time between this post and my last, the markets dived sharply – and probably the nastiest one in a very long time. I remember getting ready for a trade on the VIX two weeks before the strong decline; however, as my luck would have it, I did not enter trading parameters because I was too busy attending to life’s other cares, and so, what happens when you miss the biggest trade of your life? You make your computer do what the markets did, and I ended up having to buy a new one in the Comex show.

Anyway, the consensus immediately after the drop had been that it was the perfect time to buy the huge dip and wait for the recovery; after all, Looking at how the markets had sailed along prior to the sharp drop, it seemed like the stock market was just holding the best sale in many years (while stocks last!). As the days and weeks lingered, the other side of the coin emerged: it could be the first warning – the first rung down – before a truly huge economic catastrophe? Sentiment started to balance between the two sides. I was first very bearish – maybe this was because I wanted another bite – or rather, revenge for missing the boat – at the VIX; however, I have since changed my view and am now looking for entries to catch short-term upside.

Most charts of major global indices are painting a largely bearish, rounding, stalling kind of pattern. There is no well-defined formation but a form of the large head-and-shoulders pattern seem to be emerging – not fully formed but a work-in-progress. This is a serious cause of concern for long-term bulls. Most major declines have a large, loose form of a head-and-shoulders that precede the precipitation of markets. Look at the charts below for examples of what I mean by a gathering storm on the charts.

a1 a2 a3

Note that this picture that I am painting is unconfirmed, unfinished, and large in time frame.  Having missed most of the upside in the last several years – especially on american indices – I am poised to take advantage of downside set-ups. One thing we should all remember is that in general, markets take the stairs up, and ride the elevator down. Generally, comparing in a same timespan, downsides are sharper, quicker, and bigger than upsides. Therefore, even though my trading philosophy leans on longer-term plays, I still acknowledge the rewards of the principle of fast downside in times of panic.

In the short-term, I actually see a higher probability of some upside especially in american indices – less so for european and asian stocks in general. Earnings season in the US has not started well, and probably will not end well as a whole too but remember that stock markets are forward-indicators of the economy, so do not let the release of such results sway any immediate set-ups.

 

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.

 

 

Sudden pick-up in local bourse

Evening all,

While international markets were looking for clear direction, the STI picked up some points. The STI is above the 200-day MA for the first time in around six months; an easy to spot downward parallel channel is violated on the upside too. A check on the components of the STI reveals “the Jardines” and a few others were drivers of the recent uptick. Outside of the blue chip category, the property counters are enjoying a good run. Quite a few stocks that I blacklisted into my bearish list have been showing signs of life in the last two weeks or so of trading. Naturally, I am disturbed, and am worried for those that I have a position in; but, these are only short-term swings, and only time will tell if they grow into clear mid-term trends.

In the chart below, I highlight a small head and shoulders pattern that formed somewhere near the top of the parallel channel. At that time, it seemed like the head and shoulders appeared at an opportune time: resistance from the upper limit of a channel (I do not use  channels for trading but I still lay them on a chart for illustration), and rounding off just below the 200-day MA – ready to send the market below 3,000, perhaps. Far from that result, the STI flew up.

While I am still comfortably a bear, I shall see how the recent strong showing pans out.

schart

 

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.

DBS tipping over

Evening all,

I have been watching DBS quite closely since the start of the year. I usually have nothing much to comment on the local banking counters because their charts always seem so uninteresting; however, DBS started showing some signs that prompted a move to my watchlist.

DBS has been in a steady uptrend for quite a while already. In 2013, DBS pushed for highs at the $17.50 region, and went down after every attempt to best the year’s high. This is a sign of a trending stock that is starting to tank: the market not seeing any reason to price the company higher. In making higher lows, though, DBS formed what can be seen as a symmetrical triangle. Price bounced off an uptrending 200-day MA too. Late in 2013, DBS flew up and broke the resistance trend line of the then unconfirmed triangle; this meant a breakout towards the upside. Several flat trading sessions followed before DBS dropped like a stone: the bottom triangle trend line broke quickly (busting the symmetrical triangle), the 200-day MA was pierced, and even a bearish pattern – a bear flag – was formed and was confirmed.

Before last weekend, DBS looked set to fall; now, it has already accelerated downwards with a gapped candle for today’s trading. One very interesting pattern that surprised me initially is a lopsided head and shoulders. The recent slide confirms this pattern too. All these signs are telling me to look for further downside in DBS. As a pattern trader, this chart presents quite a few different set-ups for trading. As a longer-term player, I will be waiting for a retracement upwards if all these bearish, confirmed patterns turn out to be successful. Let us see how this goes.

dbs1

dbs2

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.

What is so good about gold?

Good day all,

Highlight of the past week for traders: turmoil in Ukraine gives the stock market jitters; while gold boasts its allure since the start of the year. (Of course, positive payroll figures on Friday is also quite significant). Equities have officially recovered from the slump at the end of January since prices have either breached highs – a full recovery – or climbed up near to levels seen in early January.

Gold has been making a stealthy ascent after a bearish showing last year. Last month’s trading saw gold edge into 1,300 territory – this level previously seen in November, 2013. In the chart below, you will see a few small to medium-sized patterns. The first pattern is a descending triangle. It is not the best triangle “on paper” since it has large spaces inside the triangle; however, you can identify where the bottom of the triangle – support – is at, and there are arguably three clear, lower highs. After a catastrophic collapse (if 10% does not warrant such a description, think about leveraged accounts), gold rose steadily to a high of just above 1,400. Then, the upward parallel channel was violated downwards, and gold formed a head and shoulders pattern. The right shoulder of the classic pattern is just outside the parallel channel. I have noticed such price action that links a channel with a head and shoulders pattern. After seeing many of such formations, my conclusion is that half the time the head and shoulders fails after a downward breakout – as in gold here; and the other half of the time the head and shoulders proves right and price continues further down after a breakout. This formation is difficult to trade because of the high chance of a whipsaw after the head and shoulders, but I still like to keep in mind how such formations pan out.

Gold2

All that is not so relevant to gold now; what is relevant is that gold just came out of an inverted head and shoulders and has made tracks northward. News of unrest in Ukraine triggered old prospects of gold heading much higher in the year ahead. I see no reason for gold to put on “glittery shades of 1,700 an ounce”. Gold declined significantly for the whole of last year, and it is now in a range. Simply put, gold is consolidating after a huge move. Until there is concrete sign of a bottom established in gold, I see a lacklustre year ahead for this commodity. Clear-cut resistance is at 1,400, where a previous mid-term high is at.

In the chart below, I included Fibonacci retracement levels taking the high as gold’s own all-time record at 1,900 (not exact in the chart), and the low as 1,000. I have had these levels on my chart of gold for several years. It is interesting to see that gold has been reactive to the 38.2% and 61.8% retracement levels. Currently, gold is consolidating in the region between 61.8% and 78.6%. The 78.6% level is not a popular level but my experience tells me that it is significant enough to be used.

Gold

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.

Property stocks look set to fall

Evening all,

Today, I want to talk about the property sector of the local stock market. I mentioned earlier in the year that the property stocks look quite bearish in general. After browsing through all the charts of counters in the property sector, my stand has not changed: not only are the big developers looking downright bearish, most of the smaller-cap ones look not much different. REITS retraced from their surge after the 2008-2009 crisis, and are now flat – they have lost their lustre. If you think about it from the fundamental side, it is no surprise that property stocks are not looking bullish at all; what with the multiple attempts by the government to cool down the en bloc fever and accelerated increase in property prices in recent history.

For REITS, my approach has not changed – I consider what yield the market demands from REITS. For now, the market has definitely found a comfortable level to price most of the REITS, so I do not see any catalyst for REITS to move substantially in any direction.

CapitaLand, C31.SI, had clearly turned bearish (around two weeks ago) in the short-term because of a break of an important support level at about $2.93. Longer-term trend indicators like the 200-day MA and 50- and 200-week MAs are downright bearish. I see a good chance for some buying pressure to inch CapitaLand up but the I will adopt the “sell the rallies” mentality for trend plays.

C31

Wing Tai performed quite spectacularly from 2012 through 2013; however, a downward break of the 200-day MA late last year sent Wing Tai falling by more than 15%. The recent slide initiates the downtrend that Wing Tai is in now; as such, there will be trend set-ups on the short side.

wt

In the few charts, I show a few more counters that I will be watching in the weeks ahead.

s30

 

u14

k17

 

 

 

 

ThaiBev consolidating

Good day all,

The last few weeks have been somewhat dull for me on the local equities front. I do not see many interesting charts except to continue monitoring those that I identified in the weeks before. In general, markets have been doing well ever since the small correction two months ago. A slight recovery has been running ahead somewhat quietly. Locally, the recovery was not exactly broad-based as some locals did not take cue. Today, I am looking at ThaiBev, Y92.SI.

ThaiBev has been on a long uptrend since the start of 2012. Whatever the fundamental reasons there may be, the chart gives me the impression of a growth counter – the kind that just seems to keep going up no matter what. Recently, though, something formed on the chart that made me sit up. A very good-looking head and shoulders looms at the top of ThaiBev’s chart. This head and shoulders is so good-looking that it should bode well with those using either methods of identifying a head and shoulders: three points or peaks, or three regions of price action (my style). Volume behaviour is also giving this pattern away very badly – or, in to put it properly, volume is perfect: huge volume making up the left shoulder, before tapering down into the rest of the pattern. Slight peaks in volume occur at the head and the right shoulder.

As usual, the only action I believe I should take now is to wait for confirmation of direction. A head and shoulders pattern, like most patterns, is a consolidation phase for a stock. Traditionally seen as bearish, however, my experience tells me that is not always the case. Let us see how this goes.

tb

 

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.

Sell into Shanghai’s rally?

Evening one and all,

In my last post on the Shanghai Stock Exchange (SSE), I showed you all why I was bearish on the Chinese market. Since then, the SSE climbed to above 2400 before falling several points to the 2300 region. A golden cross was established in that period.

Recent price action has produced a popular potential pattern: a head and shoulders. I say potential because we need a breakout to render the pattern valid. If I take the long-term picture into account, I see this pattern as an opportune time for the SSE to fall back to the long-term downtrend line (nearest general target being the 2100-2200 region). Also, this fits into my general, contrarian, bearish view on the stock market (bearing in mind the Chinese market can be a very different animal).

SSE

 

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.

Dollar Index forming the third region

Evening all,

First, I want to wish all of you a belated blessed christmas. I hope your festive season went well.

Today, I have a chart of the US Dollar index. In general, the greenback should have an inverse relationship with equities. In November and December, while equities made a somewhat surprising climb, the US Dollar fell (EURUSD at levels not seen for at least half a year). This rally happened despite whatever cliff talks/scares made headlines. Sidetrack: I read an article online and saw the word “cliff-mas”! Anyways, I was long and happy since I played certain stock CFDs on the long side. Ever since my last post on forex, I have not been active in that market.

The Dollar index was in a straightforward uptrend from 2011 to the middle of 2012. After that, the greenback got hammered and fell below 80. In the chart below, you will see 3 boxes. I box up 3 regions of price to show the popular chart formation of a head and shoulders. I like to describe such a pattern as consisting of 3 regions of price – contrast against the popular notion of 3 price peaks. Right now, the US Dollar is forming the right shoulder.

Naturally, I will be looking at this pattern as a topping one. The long-term uptrend in equities looks even better now compared with 2 months ago because of a rally out of a healthy correction. And, take note that the Dollar index is clearly below the 200-day MA. I will continue looking for long set-ups in EURUSD and see if this pattern does end up being a top.

usdd

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.

The battle of Olam – pickings for the small investor?

Evening all,

I spent my whole evening reading through Muddy Water’s report on Olam – http://www.muddywatersresearch.com/research/olam/initiating-coverage-olam/ , and briefly covered Olam’s 45-page rebuttal – http://olamonline.com/olam-dismisses-muddy-waters-findings . I have to admit I should have read Olam’s response more clearly if I want to come to an objective and well-informed conclusion. Nevertheless, I am not going to comment on the “fundamentals” in the battle between Olam and Muddy Waters. However, I strongly suggest you to read the report by Muddy Waters not only to see what Carson Block has to say but also to enjoy the humour and potshots that Muddy Waters aimed at Olam’s management. After skimming through Olam’s response, I tell myself that in most arguments and debates, one party is guilty and the other is correct. Before the truth is established or justice is served, both parties will always be able to present their case and support it well. The point is this: on the surface, it is never easy to pick out the clear winner. With that, I decided I will leave the high-profile battle to the “big boys”. As a chartist and retail investor, I can either step aside or rely on my own resources and attempt to gather the pickings when the dust settles; simply put, take a view (it is 50/50) and hope I rooted for the right party.

I want to remind us once again of the huge head and shoulders that was identified in Olam’s chart. Huge head and shoulders patterns are quite commonly found in market tops. It is, therefore, important to know how to identify them.

Even before Muddy Waters became known to retail investors on this island, Olam was already in a severe, clearly-defined downtrend. Albeit with hindsight at this moment, I can say that chartists should have seen Olam as bearish several months ago. (Look through my older posts for an example of my bearish technical opinion). As a believer that fundamentals come out in the charts, it is not at all surprising to me to see the Muddy Waters surprise attack sending Olam’s share price lower and shaking shareholders’ confidence. This is not the first time that events happen, and the existing trend in a market simply exaggerates or continues.

In the chart below, I zoom right in on recent price action. On November 20, Olam gapped down, only to fill the gap the next day. Sellers took control yesterday, and now Olam is at $1.50. Olam is precariously low at this level. Strictly spreaking, Olam is already below previous major lows in the middle of this year. If we hang on to support at this major low, it can be argument for a bounce up. But, Olam looks horrible now, with more selling pressure today. I am itching for a short here which makes me side with Carson, but I must apply my ordinary trading principles and money management skills. Short-sellers will probably make a huge killing at the end of the day when Olam buckles as Muddy Waters proposes, but if Olam is not guilty of what Muddy Waters claims, then traders should at least have their money mangement strategies to save them.

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.