Tag Archives: Russell 2000

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.

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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.

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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!

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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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Head and shoulders

Evening one and all,

If you recall my post at the beginning of the year, I signalled caution for the year ahead as there was indication of a massive head and shoulders pattern on the STI. A month has passed, and I want to bring us through a few charts today.

First up, let us look at the Nasdaq 100. You may not recall, but I posted a chart of Nasdaq quite a long time ago showing a breakout from a huge inverted head and shoulders. This one spans 3 years. I do not “trust” in massive patterns much, as I do not have enough experience seeing how they perform. However, looking at the chart of the Nasdaq now in year 2012, the pattern is performing quite well. The recent rally in equities is pushing the Nasdaq to high levels (of course, it is still nowhere compared to dot-com bubble days). As a short-term trader, the breakout from the massive inverted head and shoulders will not influence my trading much for this year, I will still monitor this chart with the pattern on it. It will be interesting to see what happens in the years ahead. A projection based on the pattern will be for the Nasdaq to trade above 3200/3300!

Next, I have identified a smaller inverted head and shoulders. Basically, it sums up the Nasdaq’s movements in year 2011. It is an ugly inverted head and shoulders, but I still see it as one. An important thing is, we have a breakout. Projection puts the Nasdaq up to the 2700 region. If the current surge continues, we could get there in less than a month even. But, it will be more realistic to give the Nasdaq some more time. So, this is the latest development on the Nasdaq’s chart.

Next up, we have the Russell 2000. Straightaway, let us pinpoin the head and shoulders that was looming on the chart ever since the start of this year. At first, I was wary of it since head and shoulders are supposed to mean downside – especially one that comes after a run-up. However, as usual, the market had her way with me. What is happening now? The strong surge in January is forcing me to accept an upward breakout from the right shoulder of the head and shoulders formation. I have learnt from a very good technical analyst based in America that we should expect this event called a “head test” when we see an upward breakout from a head and shoulders pattern. Simply put, price will breakout from the shoulder and head towards the “head area” – in this case it is above 800 region on the Russell 2000. So right now, the Russell is experiencing a head test – make or break time. If we blow through this region easily, then this year should be a very strong one for equities – or the mid-cap american stocks at least; however, if we fail here, we should expect the Russell 2000 to decline considerably.

Now, we have our beloved STI. If you want to look back, here is the link: https://technicalanalysistalk.wordpress.com/2012/01/08/general-theme-for-2012/ 

Okay, the STI has only recently broken through the 3000 barrier, unlike the US indices that have been soaring through resistance levels. If the STI takes cue from continued buying pressure elsewhere, then I have to see it as an official upward breakout from the 2-year old head and shoulders. And, as I just said above, we look for the STI to race up for a head test which comes in at around 3100-3250. So, for now a short-term target for the STI is pegged at 3100.

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.

General theme for 2012

Good day all,

Today, I shall post my view on the equity market for the year ahead. I was quite bullish last year, but sadly the STI decided otherwise and ended up down 17%. Nevermind that. My long-term analyses are just to give me a broad overview/forecast of what I see on charts presently, and what I am expecting to see. I do not trade or invest based on my long-term views as I prefer short-term trades where I can be more flexible in cutting losses or taking quick profits and such. I believe it is imperative for short-term traders to also zoom out of daily/intraday charts and take a good bird’s eye view of the market once in a while. So, what better time to do that than in the first several days of the beginning of the year?

In the chart below, you will see a weekly chart of the STI ranging from the middle of 2006 to where we are now. In general, 2009 was a fantastic year; 2010 was a testing one, though bulls who rode out the volatility won; and 2011 was a dissapointing one for those hoping for a continued rally (like me). Anyways, what is past remains history, which is what we see and use on the charts. Lately, I have been worried with a sign I am seeing on the charts at the moment. Before I get to that though, let us look at some fibonacci levels. I will take the high in 2007 and the low in 2009 as the 0% and 100% levels. In 2010, a support zone of 2650-2700 came out. After a strong rally in the second half of 2010, we never needed to look at 2650-2700 again. Fast forward to 2012, 2650 is the vital 50% retracement level based on the post-crash high of about 3300. So straightaway, we have two events on the chart telling us that where we are now – friday’s close of 2715 – is a very important support zone. Bring in the 200-week moving average – hovering at about 2700 presently – and we should establish this zone as very important.

Now, the reason why I am worried looking at the chart of the STI is that a large head and shoulders seems to be in the making. Where is the neckline of the potential head and shoulders? Approximately 2700.

I do not like purely speculating on patterns that are not fully formed – which means they should be confirmed with a breakout – but I will sound out the alarm and monitor a chart if I see something interesting; and here, we have a large head and shoulders. Based on basic technical theory, an upright head and shoulders should mean impending downside. But, my belief is that most, if not all, patterns can lead to both upside or downside. The trigger is to wait for the breakout. (Yes, there are failed breakouts here and there, but that is another story, and for me, I do not see it happening a significant number of times). However, most head and shoulders that are large in size – the potential one on the STI is at least 2 years old – usually signal downside. Basically, what we are actually seeing is price making a rounded top, and because of its massive size, it means a market has turned and something in the real world will trigger the collapse. Case in point: Look at the STI’s movement in 2007 and 2008. The market rallied hard coming from the multi-year bull run after the dot-com fiasco, made a top at 3800s, then dropped back down to 3000 for consolidation. What the big picture looks like is a rounded top. And such an event on the chart usually has the same psychology as an upright head and shoulders. So, once breakout is seen, we look for serious downside. Using hindsight, we can see this phenomenon unfolding from 2007 to 2009.

It does not just happen in the STI’s chart in 2008, take a look at the charts below. First, we have the S&P 500. Back in 2000-2001, the market rounded, fell below the 200-week MA and there was no turning back after that. The multi-year bull run ensued after a bottom emerged by June of 2003. Once again, the S&P 500 made another rounding top in 2007, and we all know what happened after that.

  

So, this is one tool I have learnt to use in finding mid- to long-term market reversals. So, now it seems like I am bearish on the STI for this year right? Well, the “catalyst” is the breakout. Will we see the STI break through the neckline convincingly and staying down? If we get that, then I have to say I will be on the side of those naysayers who keep harping on how we are starting to see the crack from a double-dip recession. I am hoping against all hope that that is not what we get. But if the charts tell me so, then I have no choice as a chartist but to look for some serious downside.

US indices set to move up in short-term?

Hey all,

As the year 2011 draws to a close, I will write about my year regarding technical analysis. Equity-wise, I did not do too well. Though, I did have a good year in the forex market. Anyway, I will put up long-term charts on the equity indices next year. For now, I am seeing events on the charts of US indices. Let’s take a look at them.

The S&P 500 ended the year flat, though we had alot of volatility throughout the year. Looking at the chart below, you can tell US stocks traded in two separate regions. The dividing level was 1275 for 2011. Going back to 2010, you can see an important resistance level at about 1220 (red line). After the US debt downgrade this year, the S&P 500 found resistance right at that level too. Though, that line did get violated (in purple box) towards the downside after we broke through once; if I’m not wrong I had a post about that. Anyways, the important thing is that we are clearly above 1220, and looking to test the important 2011 level of about 1275. We did break through it once this year, only to reverse all the way down. So, in the short-term ahead, any upside should get up up and above the important resistance level of 1275.

Now, my post today is centered on an unconfirmed chart pattern I see on the US indices’ charts. Flirting around the 1220 level, the S&P 500 ended up forming an unconfirmed inverted head and shoulders. If you have been following my last few posts, you will know I identified an unconfirmed, good-looking inverted head and shoulders in the STI, that now seems to have fizzled out into either a failed pattern or one with unexpected downside breakout. Nevermind that, I believe in sticking to my guns and not giving up after a failed pattern. Once again, I will be leaning towards the bullish side for US indices because of this inverted head and shoulders. The pattern comes at a time when the S&P 500 is looking to break through the resistance that was once support before the US debt downgrade. So, what better than a chart pattern to act as a catalyst for a rally past the resistance? Key support for this unconfirmed pattern is 1200. If we do experience selling pressure instead of buying pressure in the weeks ahead, 1200 is the leel to watch. Breaking down below 1200 means one of two things – we have a downward breakout from the inverted head and shoulders, or we ahve to render the pattern invalid and take it off the chart.

The next few charts you see below are charts of US indices with the small inverted head and shoulders.

  

Finally, I have a longer term view of charts of certain indices to show you all. Is a huge head and shoulders in the making?

   

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.

Quick test coming up

Afternoon traders/investors,

Today, I shall take a look at some US indices charts and a chart of the STI too.

After a small rally a week ago, markets ate down all the gains, and we are now testing recent lows. Technically, this will be very important. Ideally, we hope to see rebounds coming up soon so that we get double bottom patterns –  or some other consolidation pattern, before prices start recovering. If markets continue the free fall, all notions of bullishness will be gone. If you pull out your historical charts, you will see that everytime the market corrects in an uptrend, the correction will show some sign of a recovery coming up. A quick look at the chart of the S&P 500 shows me inverted head and shoulders patterns, double bottoms, trible bottoms, or simply a higher low pattern. This time round, we see the immediate drop right after the US Debt downgrade, then a small rebound before selling pressure all the way to the recent lows. It is still too early to find out anything from the charts now. But by looking back at history, you will get a slight idea of what to expect if this market is going to stage a huge rally up, or if this is the start of a bear market. Anyways, now for some charts.

I am not sure of what other chartists think about the charts of US indices; for me, though, they still look somewhat okay. They have been in parallel channels, and the recent drop looks like a simple technical correction. Problem comes in when the indices’ levels stay clearly below the upward channels. That will be considered a breakout from a channel towards the downside. Now, a worrying sign has appeared on the SP 500: the 50-day moving average has just crossed below the 200-day MA.

  

Next up, we have the Dow Industrials. Just like the other US indices, we have a long, nice upward parallel channel. The index is testing (strictly speaking, below) the bottom of the channel. A test will not take weeks/months. So the bottomline here is, we are at an important time in the markets now. If we continue cracking down, this may be the beginning of a bear market.

For the sake of using another chart, instead of the same 2 as above, I have chosen to look at the Russell 2000 (Russell’s index series is used for small- or mid – cap US stocks) to illustrate how a chart may look like if selling pressure is due to an expected correction in a bull run.

Try opening the chart below in a new tab as I guide us through the bull run from 2002-2007. On the left side of the chart, the Russell was coming out of a slightly bearish phase. The green arrow you see is how price consolidated in a range before the Russell took off for the start of the multi-year bull run. In the second instance, the Russell 2000 first made a lower low before rallying and making a higher low – this results in a pattern called the inverted head and shoulders, or some of you will see it as a diamond. Third time, price found a floor, and held there until buyers came in.

Next up, I have a chart of the STI.

In the first box, we see a higher low pattern, or some may see it as an inverted head and shoulders. In the second box, we see a fair-sized inverted head and shoulders before the strong run up in the secnd half of 2010.

In conclusion, I am still trying very hard to wave the bull flag; however, as the days go, my bull flag flies lower and lower. I still see hope in the charts. If we do get some sort of consolidation pattern, it will serve as a sign that we can come out of this hole. I leave you with a chart below that shows what I am seeing on my mid-/long-term chart of the STI. The 38.2% retracement level is coming into play.

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.