EWI Free Week Opens From Nov 4 until Nov 11

Nov 4, 2009: 1:38 PM CST

It’s back!  Robert Prechter’s Elliott Wave International has opened its services for a “Free Week” trial of their subscription forecasting services from November 4th until next Wednesday, November 11th.

During that time, you will receive access to the three-times per week “Short Term Update” which covers the stock market indexes, gold, treasury yields/prices, and silver markets along with the US Dollar and Euro Elliott Wave forecasts.

They are also offering the October Issue of the Elliott Wave Theorist service, written by Mr. Prechter in which he expands on his current views and forecasts which have garnered a fair bit of headlines and controversy.  This is your chance to see for yourself what Mr. Prechter is saying in his reports.

This issue features “14 eye-opening charts across 10 analysis-packed pages for today’s most critical markets.”

Also, they are providing access to the November 2009 Financial Forecast which is a broader perspective piece across various markets.

This episode includes “A thorough Elliott wave perspective on the stock market today — what does Elliott tell us about the current juncture?” along with current insights on momentum, chart and bar patterns, and trading volume.

Visit their “more information and sign-up” page to start your trial and see what membership is like at one of the largest financial forecasting membership services.

My appreciation to the Staff at EWI for allowing me as an affiliate member to share this opportunity with you.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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The Difference Between Logarithmic and Arithmetic Trendlines

Nov 4, 2009: 12:05 PM CST

If you’re ever been puzzled whether or not to use a logarithmic or arithmetic chart and how to interpret trendlines, you’re not alone.  Let’s take a recent look at Goldman Sachs (GS) and compare the different up and down trendlines on both scales to note the key differences and insights from both.

First, let’s take a look at the regular or arithmetic scale, which keeps price changes (dollars) constant in the scaling:

(Click for full-size chart)

Using a simple trendline moving down into the 2008 lows, we see that price broke upwards from the descending trendline on December 8th, 2008 with a gap through the line.  This occurred at $74 per share.

As price rose through 2009, we see another simple trendline that connected (roughly) the five swing lows that was broken to the downside officially on October 28 as price broke beneath $180 per share… though it was marginally broken slightly earlier.

What might a logarithmic view of this same time period have showed us?

Next, let’s compare the logarithmic chart, which places more importance on percentage changes (keeping percent moves constant):

(Click for full-size chart)

The benefit to logarithmic charts is that we are comparing percentage moves instead of pure price moves.  Thus, a $1 move on a $1 stock would be a 100% move as compared with a 1% move as a stock moved from $100 to $101.

Logarithmic charts are often used over longer time periods when large price swings or percentage moves in price have occurred.

The trade-off is that we compress the upper range in price and expand the lower range, highlighting (or exaggerating) smaller dollar moves.

How does this then translate into trendline analysis?

Goldman Sachs broke the descending trendline slightly later with the second upside gap that occurred also at the $80 level on December 17th – that’s 9 days later than the arithmetic scale.

What about the rising trendline?

We can actually draw a better trendline – labeled the “first” trendline, which price broke in Mid-August at the $160 per share level.  This did not forecast a reversal, and a second trendline connected the September and October lows to the prior 2009 lows.

This trendline was broken as price was at the $190 level on or around October 16th – roughly 12 days prior to the arithmetic trendline break.

General Principle

This example of Goldman Sachs (GS) gives us a general principle to follow:

Downwards Sloping Logarithmic Trendlines are broken LATER than similar trendlines on Arithmetic Charts;

Upwards Sloping Logarithmic Trendlines are broken SOONER than similar trendlines on Arithmetic Charts.

Sometimes these ’sooner’ trendline breaks result in false signals… or just signals that are well in advance of their arithmetic trendline counterparts.

Because this is a daily chart, we’ll see only slight changes between the two charts, but this effect would be magnified over longer periods – making the difference between signals in months instead of days or weeks.

Both have their uses and neither is superior to the other in price analysis.

However, this is a distinction you need to know when applying long-term trendline price analysis.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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Levels to Watch on the Dow Jones Nov 3

Nov 3, 2009: 2:51 PM CST

Following up my post this morning on the “Broken Support on the S&P 500,” let’s take a similar look at the current levels to watch in the Dow Jones Average.

Speaking from a daily exponential moving average point of view, we see that the Dow Jones actually remains above its daily 50 EMA – which now rests at 9,670.  The Dow Jones is currently the last of the major four US Market Indexes to hold above the 50 day EMA.  The Russell 2000 has fallen (broken) the most beneath its rising average.

Any break beneath that zone will likely be met with further selling in a deterioration of the uptrend bias.

The lower daily Bollinger Band rests at 9,665, giving us a confluence zone to watch at the 9,660 level for a possible support bounce… or an early reversal signal on a failure beneath this level.

To the upside, we have the 20 EMA at 9,850.  This could hold as resistance, or if broken, would clue us in that odds then favored for a retest if not exceeding of the 1,0100 October high.

Underneath these levels, we see a lengthy negative momentum divergence which appears on all four US Market Indexes.

More importantly, we see a deterioration (non-confirmation) of Breadth, or in the difference between the daily NYSE Advancers and Decliners.  For deeper explanation of that concept and bearish, non-confirmation, see my prior post “Daily Market Internals Now Failing to Confirm Market Rally”.

Again, we have volatility ahead of us thanks to a Wednesday Fed Meeting announcement and a Friday morning Jobs Report.

Stay on your toes and don’t get complacent in either direction this week.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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Hewison Video Asks Has the SP500 Broken Support?

Nov 3, 2009: 12:39 PM CST

Adam Hewison released a new update video on the S&P 500 this morning entitled “Has the S&P 500 Broken Final Support?” or alternately titled “Weekly Sell Triangle on S&P 500″.  I was impressed with how much Adam compressed in this brief 5-minute video!

(Image links to video page)

The chart I captured above shows where Adam is describing the long-term trendline originating from the March 2009 lows which was recently broken with closes to the downside (we’re beneath that as of this writing).

There’s another shorter term trendline that connects the three recent August, September, and October lows which also was broken at the same time as the longer trendline.

In addition to describing this trendline, Adam highlights key downside ‘targets’ or Fibonacci retracement prices to watch for possible support and describes the possibility of a short-term head and shoulders reversal pattern (in the event that we get one more swing up that fails to make a new high) and that that might mean.

He also sneaks in a discussion of the negative MACD divergence that I’ve also been showing as well.

He concludes the video by showing the recent “Trade Triangle” signal from the Market-Club software, which has triggered a weekly sell signal as of Monday.

I would suggest that 1,000 would be the “final” support level to watch because of the ‘psychological’ significance at that area, as well as the October support lows just above 1,000.  Still, the breakdown of two trendlines does not bode well for buyers.

The big question on everyone’s mind is whether or not this is “just another bear trap” or the beginning of a substantial (or even intermediate term) retracement.

Let’s keep a close eye on these levels and possibilities, particularly given that we have a Federal Reserve announcement on Wednesday and the “Jobs Report” on Friday.

Be safe.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

The link and chart are provided with permission as an affiliate member of Market Club.

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Nov 2 is a Day of Intraday Divergence Lessons

Nov 2, 2009: 3:22 PM CST

I wanted to follow-up from this morning’s post in highlighting the TICK and Momentum Divergence concept and note that we had two additional examples of the concept – making that three clear examples of the trade set-ups and possible trend reversals that can come when momentum and TICK divergences form intraday.

(Click for Full-Size)

Without going into a full explanation (see morning post for the logic of divergences), we see two more examples of the divergence or “non-confirmation” concept.

We had the early morning negative Momentum and TICK divergence precede a price reversal to the downside;

at 12:00 CST / 1:00 EST, we had a lengthy positive divergence in TICK and Momentum precede a reversal back to the upside;

and finally, we had a 2:00 CST negative TICK and momentum divergence precede what appears to be a reversal back to the downside that’s taking shape.

Remember that not all divergences lead to price reversals – just like no pattern in technical analysis is fail-proof – but what we’re looking for is higher probability, lower-risk set-ups, and it is my belief that divergences can offer good trading set-ups, along with helping confirm trend structure.

Under the principle “Momentum Precedes Price,” divergences can precede price reversals or retracements when paired with absolute new price highs or lows.

Again, I teach these concepts in more detail to the members of the Idealized Trades service, but I always want to highlight these examples when crystal clear examples show themselves each day.

Take the time to learn this concept if you have not already.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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