Tag Archives: inverted 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.

 

 

Mid-year bourse review

Good day all,

Time seems to fly pretty fast for me. Somehow, the “trading department” in my mind still has a calendar showing the first quarter of the year. I started the year with many trading ideas and patiently waited for set-ups to trade. Some came while others were like a passing drizzle before getting out of the house: just when you have umbrella in hand and are reaching the end of a sheltered walkway, the drizzle stops and you are stuck with an umbrella for the rest of the day. Overall, the second quarter of the calendar year proved to be an uneventful one for me. Trending stocks took off before I found them, entry orders were teased but not touched, and – fortunately – stops-losses were not getting activated. So – so; mas – o -menos.

Was the market flat since the start of the year? No. The STI put in a good 10+% showing, and quite a few sectors performed decently. The second- and third- line counters also moved. Western indices were more or less higher. I have a chart of the STI below. 2013 carried forward a bearish market into 2014, and the outlook then did not look promising at all. A classic inverted head and shoulders – which I sighted late and ignored – propelled the market above the 200-day MA and close to the 3300 region. As in my last post on the STI, not that many constituents of the STI portrayed the same picture, but there were those that sprung to higher heights.

I was wrong about the STI at the start of the year, but I have the same conviction again: I am not convinced by the rally so far. More so now that the STI is clearly rounding off and volume was tapering off over the last few months. At the top my head, I already have a rough opinion on which stocks that will drag the bourse lower, and those that carried the STI higher the last few months do not look that bullish. The only disagreeable factor in my analysis is the bullishness of western indices so far. The uptrends are still strong and I do not even see hairline cracks (in general).

sti

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.

Local bourse looks dull

While I was on hiatus in the latter months of last year, I still monitored the markets. The general story went like this: US markets soar, European markets take cue, and Asian markets disappoint (“ex-Japan” – as they like to say).

spsti

Singapore counters did not give much reason for cheer. I remember vaguely seeing a potential inverted head and shoulders that should have been on the radar of some chartists. It is not the best-looking of its kind but the general idea is there.

failedihs

The then unconfirmed pattern resulted in a downward breakout. It can be seen as a successful downward breakout actually. But I will not go into it anymore.

For an index like the Straits Times Index – STI, one way of analysing it is to look into the constituent components. After a brief look at all of the charts, my simple view of the local bourse is that many counters are either range-bound or trending lower. Property counters were downright bearish quite a while ago, and the picture does not look very different now; the telcos look like they have finally reached a fair level after years of the market pricing them higher; and, the Agris look either flat or in downtrends. The only sector that may surprise is banking. (Even then, my analysis in future may point in the opposite direction).

In the charts below, you will see a similar story: major support breached, and a clear case of what seems like more than the start of a downtrend.

e5h c31 s63 c07

While western markets resume their upward trajectory, I think the large-cap local stocks will continue to disappoint. Some are even presenting downtrend trading opportunities. However, I do see some of the second-, third-tier counters that look promising. As the weeks and months go by, I will upload some of those charts.

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.

Amidst the IPO hype, SPH lags

Good day all,

The recent hype over the listing of SPH Reit and OUE Hospitality Trust just bowed over. We did not get huge spikes on IPO day and the following sessions. I was not surprised seeing how the yields are just about right. SPH Reit’s yield is already on the low side, so any further price appreciation will drag the yield to a relatively low territory of 4%. When it comes to local Reits, I believe it is all in the yield and what it says about the level of risk. How much  yield is the market willing to take from a Reit under the prevailing market conditions. Two or three years back, the Reits were paying yields of as high as 10%! But, as the world economy started looking brighter compared to 2009, Reits were pushed up and yields had to decline. The level of risk had dipped and there was no reason for such an instrument to be paying 10% distributions. Anyways, enough of Reits; I am looking at SPH,T39.SI, for today.

SPH started the year with a bang as share price pushed through strong resistance at $4.25. This level was where SPH made a first high post-crash. After gapping up in March, SPH tested the support level several times. The support held strong until a break to the 200-day MA in June. Just like the STI and quite a number of other counters, SPH formed a confirmed inverted head and shoulders. Friday’s high broke through the right shoulder on month-high volume. However, SPH is lagging the other counters with the same set-up. This represents a chance to get in on a pattern play that is confirmed by other counters sharing the same scenario.

 

t39

 

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.

Pattern in hindsight, pattern in formation

Good evening one and all,

I have charts of the local bourse for today. The correction in stocks several weeks ago has slackened considerably. Most markets traded without a clear direction in recent weeks, which sounds like a quiet phase after a big move. The STI has been languishing in the 3100 to 3200 region for most of the time. I spotted what looks like an inverted head and shoulders in the making. This could be a reversal sign – which comes at a good time since my general view is that the current correction is a healthy one in a bull market. Of course, it is wiser to wait for confirmation. Nevertheless, I highlight the pattern on the chart below. It is not the best-looking one but the general psychology of 3 regions of price can be seen. The pattern is small and must be noted that it is not confirmed yet.

st1

In hindsight, I show you a past event on the chart of the STI. Some time back, I identified a large inverted head and shoulders on the chart of the STI. A small false breakout toward the upside emerged but it did not hold and the STI fell (first black box below). Then, the STI continued threateningly lower, and I started to turn bearish. As if treating me like a newbie, the market made that move the bottom, and the STI rallied to the 3400s after that. With the help of the back-view mirror, I can see now that the right shoulder was only slightly larger than the left shoulder and head. However, after finding its footing, the STI blasted out of the range and hit the target based on the height of the inverted head and shoulders. Once again, this proves the lesson that the way to survive false breakouts and whipsaws is to have a good money management system. Stop your losers out, and ride your winners. Always easier said than done – always.

st2

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.

Midas – inverted H&S

Evening traders/investors,

While scanning through local counters, I came across an interesting chart – Midas (5EN.SI) broken out of an inverted head and shoulders pattern.

After stagnating in 2010, Midas went on a year-long downtrend in 2011. Certain news on the fundamental front drove Midas into the dirt – a once $1.00 stock down to the 25 cents region. The last year and a half, Midas traded in a loose range, and formed an inverted head and shoulders. The 200-day MA also made a rounded bottom as Midas picked up steam to break out of the right shoulder early this year. A simple projection based on the pattern gives me a target of about $0.58. Midas already hit that level months back. Usually, after a target from a pattern is touched, price starts retracing. As of yesterday’s close, Midas is at $0.50.

Although the pattern is considered complete and successful, I believe Midas still has more room for upside. The technical catalist for the recent uptrend is the breakout from the inverted head and shoulders. This pattern is quite large, and it formed right after a long downtrend. It looks to me Midas has recovered from the doldrums, and there seems to be more room for upside. The trend is strong – this is clearly supported by the moving averages. The only problem I have with bullish views on equities is that I am generally bearish on the general market. So I will not be getting in anytime soon, but I really favour a long-term trend trade on Midas.

midas

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.

Jumping on EURUSD?

Evening all,

Ever since my last post on EURUSD, the pair has taken off very quickly. It was so quick , and I was so busy, that I did not capture most of the move – to my utter dismay. In hindsight, the picture looks very clear – as it always does in the rearview mirror. EURUSD made a very clear-cut bottoming pattern. Not only do we have an inverted head and shoulders, we also have a straight downtrend that turned into an uptrend – a V-shaped price action. Even though it took a long time to form – flattening the “V” – it is so clear to even a person with muddied spectacles. What seemed like an “easy, ride-the-reverse-long-term-trend” play did not bode well with me. I constantly heard a voice telling me: seriously? an easy set-up in the forex market? Sometimes the better-looking a chart, the harder it is to trade! But the solution to a simple problem is just as simple: do not rely on irrational thinking driven by emotions that are not even summoned by intuition that may have been developed through experience; or, to quote trading fundamentals: keep your emotions out of trading.

In the chart below, I draw out three circles to show a conventional “3-point inverted head and shoulders”. If you have been following me for a long time, you will know that I do not identify the popular pattern by looking at 3 peaks or troughs. I look for price regions – price congestions. But the picture is so clear in EURUSD that there is almost no way anyone should be short this currency pair. At least not in the last 6 months.

eur

Enough of the hindsight analysis. So what do I see now on the EURUSD chart?

As a believer of trend-following, I obviously like the strong uptrend. There is nothing at all on the chart to tell me to turn bearish in the mid- and long-run. The recent slide in EURUSD should be seen as a healthy correction. Profits booked, and the markets waiting for some news to push it in one direction. Nearest support is at 1.34 for two reasons: one, that was a recent resistance that should act as a lightweight support for now, and the whole-number psychology. I really like the bullish picture on EURUSD. But therein lies the danger, or rather, dilemma. EURUSD obviously looks bullish to everyone except the ultra-contrarian. One risk I see for a mid-term trend trade is that the market sometimes dives down and kills those who try buying on momentum. This is the market’s way of reminding traders that there is no easy money to made. The market throws curveballs now and then so that charts do not move in one line after another. This is where money management or trade management comes in to save traders in the long-run. While I favour jumping on the bandwagon of risk-on trades like a long EURUSD, beware of the market taking a bigger correction in the days ahead.

eur3

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.

CM Pacific

Good day all,

Today, I have a chart of CM Pacific, C22.SI. CM Pacific – China Merchants Holdings (Pacific) Limited – is a toll road company.

CM Pacific has been forming a mature, unconfirmed inverted head and shoulders pattern. This pattern is huge, spanning more than a few years. The neckline is significant in the larger scope of things as this level – 75 cents region – has acted as very strong resistance. I will be in bull mode once an upward breakout is seen. I am favouring the upward because of a simple, strong uptrend coming from the head of the inverted head and shoulders. With small-caps, however, I have learnt that it is very important to have discipline in entry points. So, while no breakout is seen, I will only continue to monitor this counter.

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.

Inverted head and shoulders abound in STI

Hello one and all,

How many inverted head and shoulders can you see in the STI?

After a good run-up from June, the STI took a breather in August. A swing point low was made in September, and the STI rallied above 3000 – https://technicalanalysistalk.wordpress.com/2012/09/09/cleared-for-take-off/ .

This V-shaped price action brings about a chart pattern: an inverted head and shoulders. As of last Friday’s close, this pattern is a confirmed one with an upward breakout.

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.