EWI Releases the Ultimate Technical Analysis Handbook

Sep 23, 2009: 12:18 PM CST

I’m pleased to announce that Elliott Wave International is offering a 50-page free eBook entitled “The Ultimate Techncial Analysis Handbook

And no, it’s not all about Elliott Wave!

From the EWI Website promotional text:

“Technical indicators remove the cloudy, bias-driven assumptions from your analysis and focus on one thing that moves markets: investor psychology.

Past performance is not indicative of future results — and that’s where fundamental analysis goes wrong. It fails to factor in the psychology that not only moves markets up and down but also leads analysts to extrapolate the current or past trend into the future. That’s why fundamental analysts almost always miss major tops and bottoms.

Our friends over at Elliott Wave International employ the largest team of technical analysts in the world. They recognize that optimism peaks before market tops and pessimism troughs before market bottoms. They use powerful and sometimes unconventional tools to help identify psychological extremes that signal high-probability turning points.

EWI’s brand-new 50-page eBook, The Ultimate Technical Analysis Handbook, will show you the various methods of technical analysis they use every day and teach you how to use these powerful tools for yourself.

If you’re a technician, this eBook is perfect for you. If you’re a fundamentals follower, it’s more important than ever that you give technical analysis a closer look. Even if you never completely abandoned your fundamental indicators, you WILL benefit from drawing on these valuable technical tools.”

These are some of the methods I use each day in my daily posts and trading – they have a different perspective in explaining these concepts that I also try to teach each day through various examples.

They discuss – of course – Elliott Wave and Fibonacci – but also basic trendlines, divergences, the MACD indicator, stop-loss logic, and other classic methods.  It’s a nice, quick overview of methods about which entire books have been written.

Thanks to the EWI Team for making this available to us as proud affiliates to share.

Corey Rosenbloom, CMT Continue Reading…

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Reich: Why Dow is Hitting 10,000 when Consumers Can’t Buy

Sep 23, 2009: 11:09 AM CST

Former Secretary of Labor, current professor at UC Berkeley, and author of Supercapitalism Robert Reich penned a thought-provoking article recently entitled “Why the Dow is Hitting 10,000 when Consumers Can’t Buy and Businesses Cry Socialism.”

Visit his blog (link above) for the full article, but I wanted to summarize his main points in his post:

“The explanation is simple:

The great consumer retreat from the market is being offset by government’s advance into the market.

Consumer debt is way down from its peak in 2006; government debt is way up.

Consumer spending is down, government spending is up….

Consumer spending is falling back to 60 to 65 percent of the economy, as government spending expands to fill the gap.”

Reich discusses advances in healthcare stocks as related to the government healthcare plan in Congress; housing starts picking up thanks to the Treasury buying “Freddie and Fannie’s paper”; auto sector picking up thanks to government assistance in “cash for clunkers,” and financial sector surging because the Federal Reserve is keeping interest rates near zero.

Remember – it’s supply and demand that move stock prices… the assumption Reich is making is that demand doesn’t necessarily have to come from the consumer.

Interesting thoughts worth a read (beyond the technicals).

Corey Rosenbloom, CMT

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AIG Breakout Gives Good Example of Trading Triangles

Sep 22, 2009: 1:32 PM CST

For those of you who missed it, AIG had a large breakout from a short-term symmetrical triangle which led to a sudden achieving of the ‘measuring objective’ or price projection target.  Let’s take a look at this triangle, as it serves as a great example of the “price consolidation and expansion” principle, as well as a near perfect ascending triangle trade set-up.

This chart shows the internal (30-min chart) for all of September so far.  If we looked further to the past, we would have seen a huge surge to the upside, and this is the consolidation period/phase after the upward impulse.

Keep in mind that AIG has risen from $12.50 in early August to $54 presently in September – that’s astonishing.  However, this post is focused mainly on recognizing and trading the triangle as seen above.

The ideal symmetrical triangle will form an obvious contraction in price range – which often is signaled by drawing two converging trendlines off price swing highs.  During this time, volume contracts as the triangle forms and price compresses further – reaching a “Value Area” (to use a Market Profile term).

This means that buyers and sellers are in ‘balance’ and are ‘comfortable’ with the established price (around $40 per share).  However, as we know, balance and perfection cannot hold in the stock market, so the smallest thrust (or impulse) out of the ‘value area’ can cause shorts to cover quickly, and simultaneously draw in new buyers, excited about higher prices… which causes more shorts to cover quickly.

As such, you get a one-sided (“positive feedback”) market as a virtuous circle (or vicious circle… depending on which side of the market you are on!) develops.

Without getting too deep into market pricing theory, let’s just say you want to be a buyer as the upper trendline is breached to play for the expected (though never guaranteed) price breakout move.  The move could have just as easily came to the downside, so it’s often best to wait until the market tips its hand before putting a position on.  A stop would go on the opposing side of the trendline.

The target is just a classical “triangle” target, which is to take the ‘height’ (or distance between the two highest points of the triangle) and add that to the breakout price (at $42).

The height in this case was about $10, so that gives us a target of $42 + $10 = $52… which price hit and exceeded today on the morning gap.  This would be your exit on the trade.  Markets have a tendency to find resistance (or support) at price pattern projections, as seen here so far.

Continue studying this pattern for additional insights that will help you the next time a similar triangle forms in your favorite stock or market.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

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Video: Two Technical Levels Collide Overhead in the SP500

Sep 22, 2009: 1:04 PM CST

Adam Hewison released a thought-provoking video yesterday entitled “Two Major Technical Levels are About to Collide in the S&P 500 Index.”

It’s an interesting and ‘larger picture’ style take on the S&P 500, noting an overhead descending trendline (which I missed drawing!  I miss some of the things that are so simple – Adam is very helpful in pointing those out in his analysis videos) and the 50% Fibonacci retracement – both of which converge overhead at 1,125.

Here’s an image from the video:


(Image links to the video page)

In a 5-minute video, Adam covers an overhead trendline, Fibonacci retracements, and cycles (noting that October 11th – the 2 year anniversary of the 2007 peak – is just around the corner).

In introducing his video update, Adam writes, ”

The S&P 500 has seen remarkable recovery from the lows that were seen earlier this year. However, all of that may come to an end as we fast approach a strategic level for this market. There are two major technical indicators that are colliding at a crucial point and time. Unless you’re aware of these indicators, it could be very expensive.

In todays short video, I explain both the technical indicators we are discussing and also the important time frame that we are just about to enter.”

That’s why I enjoy these videos – Adam covers simple points in quick fashion… in a video format as well.

Thanks to Adam and staff for making these videos available to us.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

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The Symmetrical Triangle in Exxon Mobil XOM

Sep 21, 2009: 1:35 PM CST

I mentioned earlier this morning that an “Ascending Triangle” was forming in Crude Oil prices (daily), but there’s been an even larger triangle forming on the price charts of Exxon-Mobil (XOM).  Let’s take a look at the weekly and daily structure.

We can draw loose trendlines starting with the 2008 highs of $92.50 and then off the October 2008 lows to form a consolidating triangle (symmetrical) as shown above.

Price is now coming close to the “apex” or convergence price (roughly $69/$70) of the triangle, which often produces a price breakout move one way or the other (according to the Price Expansion/Contraction Principle).

For now, the upper boundary is $70 (though I’d stretch it to $72.50 to account for the numerous moving averages and Bollinger Band boundaries/resistance overhead – price would need to clear all of those before one should be bullish) and the lower boundary is $67.

It would appear – looking at this – that the odds may seem to favor a downward break over an upward break, just looking at the EMA structure and current trend structure.

Let’s dip down to the Daily chart:

This is an internal or terminal triangle that takes into account the most recent price consolidation (converging trendlines as shown).

Again, we would need a break above $71 to get bullish or a break beneath $68/$69 to get bearish.  The momentum oscillator is also contracting in anticipation of a breakout.

Should Crude Oil prices fall from here (triangle break to the downside beneath $70 per barrel), then Exxon-Mobil (and other oil-related stocks) would almost certainly break to the downside as well (and vice versa).

For now, let’s keep watching these triangles in anticipation of a trend/impulse/momentum move that would emerge when these boundaries are broken.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

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