Forex Trading: AUD/USD shows good trend

Monday 28th of February 2005 11:22:42 PM

Forex Trading:

The Australian dollar has been a powerhouse. And no wonder, they are very resource rich country. It appears that currently the AUD/USD is doing a retest of .7900 level .
Near term chart looks quite attractive to me. Up sloping arc trendline showing demand and possible cup and handle?

For now must still consider this strictly a retest of .7900 and make no assumptions. However if arc trendline support holds, then possibility exists of breakout of .7900 level.

the chart is shown below:

tc

2005/02/28 | Forex Trading | Trackback | No Comments »

Corriente Resources tiny copper stock

Monday 28th of February 2005 10:54:04 PM

Here is another copper stock although it is much less attractive situation than was mentioned in my previous post.

This one is tiny, not very liquid which is a huge disadvantage and at the moment does not show a very attractive risk / reward in my opinion. But the reason I am showing it is for the simple reason that it in 2003 it did show a very attractive set up as shown by the green arrow in the chart…

That was a very attractive set up at that time and I do remember looking at CTQ and studying its overall pattern. The reason why it was such an attractive setup was because of its long flat base which was notable about 5 years long. If you ever see a security with a long FLAT base of that duration it is always a good potential situation for the future.. it may take many years to develop into anything but is still a good situation to keep an eye on. The long basing period is a great area of cause in price and provides ’support’ for an extended move. This situation currenly is also present in the long term price of silver. Long bases are a good thing. Although they do not appear to be too exciting they are worth watching just like those cheetahs watch their prey in the African desert.

But again, CTQ currently shows no major attractive set up. The real story was when it was at 1.00 back in 2003. But even then, probably not worth giving too much credit to because of the horrible liquidity. Indeed, non liquid stocks can be the worst types of securities. I am pointing out CTQ though because it is a good example of a long term basing stock which grows into a persistent uptrend.

The current price action shows that it has likely done a ’shakeout’ and will try to climb back into its trading range. If it is able to accomplish this, then it implies that it will try to take out the 3.90 area.

This one is probably only worth considering if it is able to clear 4.00 with BIG VOLUME and volume sustains itself.. otherwise not worth it.

Peace. Im out.

tc

2005/02/28 | Flashback | Trackback | No Comments »

Commodity Copper shows good technical analysis trend

Sunday 27th of February 2005 07:46:23 AM

I received an email about a week ago from a loyal reader. I was late in responding, but am glad I checked my email because it led to a pretty good analysis which you are about to read right here at Online Trading. I thank him for writing me because it led to this write up. So credit in part goes to him…

What I am talking about is the commodity COPPER. This post sort of follows a theme I am on recently which is commodities. If you visit Online Trading regularly then over time you will realize a few important things, one of those things is that commodities is and will continue to be a big story. Why? Well the answer is simple. The previous 20 years saw a love affair around the world for paper. Paper assets that is… Stocks and bonds come to mind.. Dow Jones Industrial average, Nasdaq… these are the paper asset kings.

During that same 20 years…

the world hated things, or commodities. Commodities were sold off and considered unimportant, not necessary and having no great value. Gold, Silver, Copper, Zinc… all these things were sold off and ignored…

But now we have come full cycle and a reversal of sorts is taking place. Commodities are now getting the upper hand. This does not necessarily mean that stocks and all paper assets are going to plunge into a bear market. The reason I say this is because even if there is an aggressive inflation stocks themselves can be inflated and while it may appear that they have a very high value, in reality it will not be so significant because of inflation itself. For example, even if the Dow Jones Industrial average goes to 20,000, it could very well be that a dollar bill at that time is only really worth 50 cents. Get my point?

Anyway, the first chart is of the commodity copper and is a very powerful chart because it speaks volumes about the state of the commodity trading market. First, note that the price of copper has generally been in a bearish sideways trend or basing pattern for about the last 14 years. This fact alone is very significant because it makes a statement about risk/reward and what to expect in terms of future activity in this commodity.

Very important to note is that the copper price broke out above its long term resistance with volume making the breakout valid. The two trendlines I drew near the 150 level show what looks like a rising wedge . A rising wedge is somewhat of a tricky technical pattern because it can have either bearish or bullish implications. I would say it much more 50/50 type pattern than an ascending triangle for example. But, sometimes you have to make exceptions and need to dig further for more analysis to make your conclusions… Probably experience and time is what helps here. If you look at enough variables, then you can come to a more sound conclusion about what copper will do…

Lets look for some other hints. Aha! Well one of them is that the CRB index has recently broken out to a new high after a long basing pattern. This is indeed a pretty big hint. What else.. hmmm. Well another tiny hint is in the most recent combined continuous copper contract volume shown for the most recent month (February) in the first commodity copper chart above. The volume is hinting that copper wants to move and break out north from this rising wedge pattern. Indeed, in my experience, when a commodity or any stock or index for that matter breaks out north from a rising wedge, it is usually a pretty big and persistent move. It is quite scary too and hence the phrase ” climbing a wall of worry”.

This second little chart to the left is a close up zoom in of the actual rising wedge pattern of the commodity copper. The pattern is quite clear and easily identified. Technically, the upward slowing lines depict a gradually weaking demand situation. That is the dictionary definition in terms of technical analysis. But again, experience and a closer look at the commodity chart tells us maybe something else is going on.

Lets look at yet another chart and zoom in even closer. This chart is similar to the one I received from the reader mentioned at the beginning of this article. This is a much closer zoom in on the last 6 months or so and what we see here is an ascending triangle pattern. Isn’t that quite fascinating? The commodity copper chart at first glance shows us a possibly bearish situation. But then, looking closer at the chart in search of the truth we see that in the near term a very bullish technical analysis pattern exists. Indeed, not only is the pattern bullish, but it has already shown signs of an early breakout with volume. So, we have a smaller time frame very bullish and reliable pattern WITHIN a ’so-so’ technical pattern. Another good clue for us in determining where the commodity copper is going.

Any more clues? .. Hmm.. What? You say you want another clue ? Let me see if I can oblige…

Aha! Yes, there is another clue dear friend and this time it comes from the S&P 500 index. Do you see that rising wedge on the S&P 500 index? Note how it broke out north of the rising wedge. This is a good, no not good, more like great example of how a rising wedge technical analysis pattern can turn into a very bullish situation. I remember specifically near the end of 2003 that many who study technical analysis were quite bearish at the time. I must admit I too was quite cautious during this time because I saw the rising wedge pattern and could not help concluding that indeed the pattern had some good potential for bearish implications. But it did not happen, it proved many people wrong and broke out north. Everyone became bullish during the period of that breakout, extremely bullish. And that marked the euphoric peak for almost a year in the S&P 500.

Now, the S&P really has nothing to do with copper. I just wanted to show you a good example of how a rising wedge, normally feared, can turn into the exact opposite and very bullish situation!

So the clues to me are enough at this point to say that I believe the commodity copper will break out north from this rising wedge pattern and do so in quite persistant way. This is what my experience in chart reading tells me.

This chart to the left is of an actual commodity based copper stock. If you like stock charts and you consider yourself to be a pretty good technical analyst, then this chart will probably get your attention. It is a dream stock chart and a great example of how once a powerful trend sets in motion it is not likely to stop. Powerful persistent uptrend. The reason why this commodity based copper stock moved with such persistance is for no other reason than because the commodity copper price had its own very powerful upward rally in late 2003. This stock actually started moving before the upwards explosion in the commodity copper. This was definitely an very powerful online trading opportunity to those who were early and smart enough to identify the trend before it actually happened. So what is the name of this stock?

Don’t worry I will tell you shortly, because the price action to the left only covers the period ending in 2003. There is another huge developing story with this stock and it is based on the commodity copper.

Commodity based stock trading is definitely a unique form of market analysis. With individual stocks you analyze their fundamentals, their technicals and other factors to determine their future price movement. But with commodity based stocks you must carefully analyze the underlying commodity itself as a means of predicting where the stocks in that sector will go. It certainly offers a different angle and approach, but can be quite profitable if you know what you are doing.

Ok enough of elaborating on this one. It is time to move on to a more longer term view of the stock that has shown an amazing uptrend during the commodity copper’s breakout.

And the winner is…

FCX, or Freeport Mcmoran, is the winner. That is the stock depicted in the larger chart above and in this smaller chart next to this text. This is a commodity based copper mining stock. Indeed this commodity based stock chart looks very attractive to me. On a scale of 1 to 10 with 10 being the most attractive I would rate it a 9. I rate it this high because the three blue arrows indicate a pretty reliable reverse head and shoulders pattern that has sustained itself on the longer term uptrend. Major bonus points for doing that! Also, read carefully my analysis in the paragraphs above this one. What did I talk about? The commodity copper and how its pattern and trend indicates a high probability that it will break out north in probably persistent fashion.

To me, the writing is on the wall. The overall FCX chart pattern combined with the evidence on the commodity copper shows a high probability situation that FCX will breakout north from its reverse head and shoulders pattern. The price objective is 60 based on standard technical analysis measuring methods.

I will revisit this story in a future posting. To be notifed exactly when I do revisit the story, be sure to add Online Trading to your KLIPFOLIO or enter your email address on the box on the homepage that says ‘enter email here’. For now, let the trend be your friend and the price be on your side…

TC

P.S. Wow, this was a whopper of a post.. I really don’t know if I can keep the posts coming in so long… Maybe better to have them in bits and chunks, short and digestable, don’t ya think? :smile:

2005/02/27 | Commodity Trading | Trackback | No Comments »

Steel Stock TONS article: correction

Friday 25th of February 2005 06:36:59 AM

I apologize, but I must have accidentally deleted a previous posting on here which was a highlight of the steel stock TONS I profiled on January 28th, 2005. I don’t know what happened to the article and it is a shame I lost it because it was a good read and quite a good analysis.

Anyway, I don’t have the article anymore, but if you want to see the stock chart which was included in the article you can since I was able to keep it…

TC

2005/02/25 | Site News | Trackback | No Comments »

Natural Gas Stock NGAS ready to move on Friday

Friday 25th of February 2005 03:13:00 AM

You’ve heard me talk about commodities and inflation. And you have also heard me mention the natural gas stock NGAS. The fact that the CRB index has broken out, and crude oil is moving fast and furious seems to indicate for the moment anyway that commodities are hot, very hot.

I believe that the Natural Gas Commodity Trading stock NGAS is ready to make its move on 2/25/2005. I also believe that the Natural Gas Price chart is building up for a breakout.

The Natural Gas price chart has broken a downtrendline with volume. What more can I say? It is starting to look bullish. And based on my analysis I see that NGAS the stock is ready to breakout, probably Friday morning. The virtual trade here is entry between 5.20 and 5.30 with stop loss set at 5.00. The objective is about 6.8. This looks like a very attractive set up to me with. Assuming entry at 5.20, maximum downside risk here is -3.8%, with first potential upside of about 30%.

All I can say is that commodities are on fire. Not all of them, but plenty of them are. You just have to know where to look and be picky.

The chart of the natural gas commodity trading stock is shown below:

TC

2005/02/25 | Individual Stocks | Trackback | No Comments »

CRB index indicating inflation about to accelerate

Friday 25th of February 2005 02:45:20 AM

The commodity research bureau index, a good leading indicator of future higher inflation has done the unthinkable. It has avoided a bearish divergence, and instead formed a bullish symmetrical triangle. A couple days it broke out of that symmetrical triangle in what I believe is an elliott 5th wave UP.

I am no elliottwave expert, but I do know from experience that if it is an elliott 5th wave up, it could be a very fast and persistent move up. I am simply amazed at the ability of the commodity research bureau index to show a consistent powerful uptrend. There was the potential where I have drawn the red arrow all the way at the top for the commodity index to break down in a bearish divergence. However it did not happen! That is what bull markets are made of. Yes, a bull market in commodities!

Note also that the RSI or relative strength index is in breakout mode after 2.5 year consolidation!

This is likely to be the most explosive leg up for this commodity trading index. Are you putting the puzzle pieces together? Inflation + Declining Long Bond + Higher Rates…

TC

2005/02/25 | Uncategorized | Trackback | No Comments »

Ryland Home Building Stock Chart at a peak?

Friday 25th of February 2005 01:30:11 AM

Here are a few observations on a homebuilding stock. In particular I am talking about Ryland Group, a home builder. Even if you have only followed finance or the stock market occasionally over the last few years, you probably have heard about how great the real estate boom is. And yes, there were also plenty of predictions out there about a real estate top among other things..

Well, tops are certainly difficult things to predict with any sort of precision…

But if you can build up enough evidence to support your case, one that is based on either technical analysis or fundamental analysis then you might have a fighting chance. This analysis is going to be quite brief. And maybe I cannot even call it a real analysis per say, but rather a few observations I wanted to make after gathing up some data in recent weeks.

Here is a question for you.. “What do Yahoo and Ryland, the homebuilder have in common?” Probably not too much in a business sense. One builds homes, the other is online and in the advertising biz. Well perhaps they have nothing, or almost nothing in common now, but I do believe they may have something common in a few years time…

What am I talking about?

I will tell you in a minute.

First, take a look at this image below. Do you use yahoo email? Or maybe you browse the yahoo online network a lot.. well then chances are you have seen the image below. Actually it is an ad run by “Lower My Bills dot com”, the online mortgage finance company… These ads have been relentless in my yahoo email account and quite distracting I might add. It is part of the reason why I switched to the google email address you see at the bottom of this web page (Yah!). I was swamped with LOADS of junk mail anyway. And this is also the reason why the best way to get updates to the Online Trading Forum are through KLIPFOLIO

That pig you see above this text is huge. Period. Indeed, it is the longest, fatest pig I think I have ever seen! And it is to be seen all over the internet. So what is my point..? Well, a long fat pig may be a fairly good psychological indication of excess greed. And as we know the stock market, while a great place to speculate in, does not deliver un-ending riches to anyone forever. It has a nasty habit of reverting back to the mean. It also has a nasty habit of cycling just like the planets do all year round.

The chart you see to the left of this text is the long bond. The esteemed Steven J. Williams posted an extraordinary editorial on a possible long bond crash here. The KEY that the long bond is faced with is that down slanting blue trend line or resistance. This large formation is an infamous symmetrical triangle that is winding up for a big move. It is likely that it will be a big move but that it will be a slow motion big move culminating in a selling climax. Keep in mind that the chart is a quarterly price bar chart, so clearly, it takes TIME for things to change with that chart.

It is looking like the most current quarterly price bar may indeed turn out to be a bearish shooting star that failed right at the upper blue down trend line resistance. Could it be that the long bond is now ready to go into a death spiral downwards spiking rates higher and forcing the Fed to be much more aggressive with rate increases? Its possible. It is definitely possible in my opinion. Credit for this bond crash scenario goes to Steven J. Williams. He was the one who identified this possibility. The next year certainly is going to be interesting.

This next chart is a side by side comparison of the home building stock chart RYL or Ryland Group, and on the right is Yahoo. I am sure you remember the 2000 peak in many of the dot coms. A lot of them were faced with a situation of expanding and hiring too aggressively combined with a downturn in economic demand for their products and services… Might such a repeat situation now start with Ryland Group and other home builders? Well again, it certainily is a definite possibility. Home building companies that are expanding too rapidly, creating too much inventory of new homes, and leveraging themselves too much are at high risk. The Ryland chart on the left is a yearly price bar chart, note that if Ryland closes the year 2005 right about where it is now, it would in my opinion be a very bearish indication for 2006 for this stock. It would create a yearly shooting star and set Ryland up for a plunge into 2006. The other thing that is worth noting about the Ryland chart is that it seems to me at least it has used up most of its cause. This kind of move is unsustainable without some kind of consolidation.

Indeed, if the Fed were to start an aggressive campaign of raising rates to try to defend the dollar what is going to happen to the homebuilders?? I think you know the answer already. It will be interesting to see how this all shakes out.. But I believe the writing is on the wall.. I am going to step up to the plate and make the fearless forecast that we have seen the peak in Real Estate as of the date of this post. :razz: So there!

TC

P.S. Ooops, I almost forgot. One last image I forgot to put up that sort of puts the icing on the cake for this articles scenario.. I will let you read into it..

2005/02/25 | Real Estate | Trackback | No Comments »

AIRT stock chart shows the importance of volume

Friday 25th of February 2005 12:09:47 AM

I did not get a chance to post this chart 10 days ago. But I wanted to as the first entry into the before and after category. Before and after seems to be a decent way for me to look at any stock or index setup, make an observation on it or prediction, and then see if I was write or not. That is the purpose of this category, as a means to learn. Instead of just talking about a stock or position, it seems to be a good idea to revisit it and see how it played out.

As a special circumstance I am going to have to post both the before and the after chart in this one post. However, if you look at the first chart you will see based on the date associated with the price bars that I had made and recorded my initial observation on 2/11/2005. So what is the big deal with AIRT ? The big deal is that it shows a very good example of why it is so important to pay attention to volume analysis when you are watching stock prices.

If you do not use volume analysis in your trading, then in my opinion you are at a disadvantage compared to other traders. Volume analysis is indeed one of the secrets to long term successful trading in my humble opinion.

I noticed the AIRT stock chart after browsing some of the most actives during that day. Notice the three red arrows I drew pointing to three individual price bars on the upward advance in this stock chart. Then, take a look at the volume bars that correspond with each price bar.

This is more clearly seen in the second chart where I have labeled the three price swings ‘a’, ‘b’, and ‘c’ colored in blue. Notice that price swing A had volume of 5.6 million shares, price swing b had volume of 4.4 million shares. Ok, lets stop there for a second. That is a 21% decrease in volume and yet the price of the stock closed above the A swing. So what does this mean? Well for starters it means they were able to push the price higher on much less volume. They were able to close the price higher which is still a good achievement. However, the fact that volume dropped off 21% is a distinctive warning sign that the move was not real. It was ’smoke and mirrors’.

It is possible for any stock to keep trending higher on less and less volume, but in terms of technical analysis, it depicts a supply/demand situation that is growing internally weaker over time. Always look for volume confirmation on stock movements and compare the volume expansion in terms of percent comparisons between previous swing highs or lows.

Point C on the chart was only 2 million shares and guess what else? Not only did point C test price swing b on a whopping 54% less volume. But it also proved the point by closing back under the close of B. At point C in the stock chart anyone who is thinking aggressively long is in big trouble… all the warning signs are there. This pattern may also be referred to as ‘Three drives to the top’ I believe as the veteran market guru Tim Ord calls it.

Anyway, point C was a bearish spring, and provided a clue that AIRT was likely to move back down to the gap, the last place where the real volume was (read demand). That is exactly what it did! A superb before and after example.

TC

2005/02/25 | Before and After | Trackback | No Comments »

Natural Gas stock NGAS almost ready to move

Thursday 10th of February 2005 03:37:34 PM

Here is a natural gas stock I discovered after scanning through my database… You know, it is funny sometimes how I find stocks to study and examine further.. Sometimes they come from memory, ones that I have watched before but then forgotten about.. other times they come from a fresh stock scan. It really doesn’t matter where they come from though because, in truth, most of the stocks I look at are thrown in the ‘trash bin’ so to speak because they do not meet criteria that make them worthy of consideration.

A lot of the time what I look for are stocks that have enough cause built up over time. The cause is like potential energy and lends itself to eventual big moves. The market, and all stocks or commodities, do this all the time. It is either one or the other.. either they are building cause, or using up cause…

It goes without saying that the best time to be ‘in’ is when the potential energy turns into kinetic energy and hence a profit.

This first chart is of the natural gas continuous contract. Since 1990 to 1999 it seems natural gas did mostly nothing except languish in a long term basing pattern. Recently however this was obviously not the case. We saw a series of explosive moves and sharp retracements in the period from 2000 to present.

What appears to be the case now with the natural gas contract is that price is coming into an apex. An apex of a very large symmetrical triangle that is. Symmetrical triangles by their very nature are not one of the most reliable chart patterns to trade on. They are notorious for false breakouts and upthrusts. However, they do usually lead to big moves.

I do not know which way this contract will breakout, but it whichever way it does breakout will be a big move.

Perhaps it would be appropriate to look at a natural gas stock? Let us do so… :

Above is a weekly chart of NGAS plotted against its MACD histogram and also showing volume. The good thing about this price chart is the way price has held support at 4.0. From the entire move since late 2002, up to the 52 week high of 6.5, NGAS has performed a 50% retracement. Nothing too abnormal about that. It is quite normal actually. This horizontal trading range is about 2 years of sideways cause. That is 2 years of potential energy for a move.. Will it be up or down? Let us investigate further…

Clearly, the stock NGAS is correlated to the price of natural gas. The price of natural gas has not had a breakout yet though in either direction.. Sometimes the stocks lead the commodity and other times it is the opposite. Is NGAS now leading the commodity? This could be so.

I like the way the weekly MACD histogram looks, it reeks of a potential breakout. I also like the fact that on the recent downtrend in prices in late 2004, volume has dried up substantially, and price was not able to get the bottom range of long term support. This is usually an attractive indication.

The volume story is also good. The early 2004 volume explosion tested the early 2003 volume spike on dramatically higher volume. This tells me that the 6.5 level will at least need to be tested if not broken decisively.

The volume picture is more clearly seen in the chart below:

This chart clearly shows the volume relationship. A move above 5.5 would be a trigger and indication NGAS wants to move. Given the amount of cause NGAS has created, the move could be explosive. The only problem with this setup is the very unpredictable nature of symmetrical triangles. Still, the parameters are there and they are attractive, to me.

I suspect that NGAS is ready for a big move, probably before the end of this month.

Peace.

Im out.

Thomas

P.S. By the way, you know I just love this stock and trading stuff. It is like art you know. Like looking at a painting and trying to read into it.. Damn, it is just so much fun.

2005/02/10 | Individual Stocks | Trackback | No Comments »

Trading is Beautiful Simplicity

Saturday 05th of February 2005 04:12:08 PM

Dear Friend,

I have been trading for about 11 years. I remember when I first started I went on an information gathering campaign so that I may discover whether or not technical analysis really works. I remember having some confusion about how to draw a basic trendline. Do you draw it over the highs of prices or the lows? I also remember going back and forth (waffling, if you will) about whether or not the MACD is a legitimate indicator, and whether or not it truly works. I eventually came to the conclusion that it does work, sometimes. But in order for it to be effective, it must be combined with other indicators and other analysis.

By the way, that photo you see perched up there on the right hand corner of this editorial is not of me. It is of none other than Richard D. Wyckoff. Wyckoff came up with a form of market analysis known as the Wyckoff Method. You probably have not heard of it unless you are a seasoned trader. It is in my opinion one of the best, if not the best way to look at the market for beginners and experts alike. Wyckoff teaches a method that lets you get a good appreciation and understanding of how to truly watch markets. It is a system and a way to frame your analysis of every market move based on supply and demand. I put the photo up there because part of my analysis today takes a principle he relied on.

Anyway, I went off topic there a bit. I will discuss the S&P500 and the Nikkei in a second, but I wrote the two preceding paragraphs to point out simply that technical analysis does work, and that it is much to your advantage to use it and to continue to learn to use it as best you can. It definitely puts the odds in your favor and helps take the emotion out of trading.

The question really is though, how complex does market analysis really need to be? In my opinion it is always better to keep the analysis more simple than complex. In a typical day, look at all the analysis that is going on over the world about the markets and individual stocks. A lot of the commentary is of fundamental nature. Millions of analysts write their research reports and make their predictions, and millions more try to figure out where the S&P 500 is going through their economic analysis. So many millions and millions of people, making so many predictions and analysis all fixated on every tick mark of the S&P500.

But in the final analysis, how are you going to make your decisions about what the market will do next? Which report will you base your decision on? A fundamental one or a technical one? From bloomberg or CNBC? From your sister or your brother? or perhaps by you yourself? But how good are you at understanding market timing and analysis?

So many questions, and so little time… The point I am trying to make here is that market analysis does not need to be extremely complex. All you need to do is learn to watch the market and make a judgment of what it will do next, based on what it is telling you it wants to do. At this very moment there are thousands if not millions of analysts on TV and internet message boards and basically everywhere making judgements about what the market will do next. Is it in a bear or bull, what will it do next… ?

And here I sit in this quiet little room with nothing but a quiet little price chart of the S&P500, that has the price bars and the volume on it. My ears are deaf to all those screams from the trading floor, all those emotionally tainted comments on network business TV and all those comments from friends and family members about what the market will do next.

In an interview about Jesse Livermoore, I remember the author saying that Livermoore had his own quiet trading room with his assistants and he did not permit them to talk at all throughout the trading day. This was in order to avoid breaking his concentration. So it seems he was really separated from ‘outside market influences’. I suspect this is one of the traits required for long term success in trading matters. Perhaps it is also a necessity to know what you are doing :razz:, when it comes to trading and the market. And my God… there are so many things that are to be known to survive in this business…

On that note, I will procrastinate no longer and jump right in to a brief analysis of the S&P500 (my take, out of millions of others).

And so below we have a price chart of the S&P500 plotted against the NYSE volume. The chart is a daily price chart.

Remember what I said about simplicity? Well, the thing that should instantly jump out at you from looking at this chart is what is known as a classic Wyckoff Jump Over the Creek with volume, and then subsequent classic retest of the creek level.

The CREEK and ICE are labeled on the chart. Wyckoff referred to price resistance as the ‘creek’ level and price support as the ‘ice’ level. Those two levels on the chart identify a trading range or cause building. Two possible things can happen from this trading range, either a breakout or a breakdown. The S&P has chosen to break out from it obviously as seen in the chart…

But, is it a valid breakout?

To answer that question requires that you look at volume, in this case the daily NYSE Volume plotted against the S&P daily chart. That breakout price bar in the beginning of November 2004 was on 1.782 billion shares. If you compare this volume against all other price swings going back to early 2004 you will be able to verify that the breakout was valid. It was a confirmed breakout in terms of volume and price spread (wide price spread).

The next thing the S&P did was trend above the creek (now converted into support or ICE since it successfully broke through it) on some follow through price action. But then, what did it do after that? It did a retest of the ICE level at about 1165. This retest is classic wyckoff and is one of the lowest risk entry points available in any market, stock or other index. But before you clap your hands, realize that the retest must be analyzed volume-wise with respect to the previous price swing highs that made up the creek level…

In late January 2005, a retest was attempted and it was done with maximum volume of 1.610 billion shares. That was about 10% less, relative to the breakout price bar, and thus, in my analysis I conclude that this was a successful retest, and opens up the potential for the S&P to resume its uptrend and eventually attempt to take out the 1215 late December 2004 swing high.

That retesting action happens with pretty high probability. In my experience you can expect such retests to occur 9 out of 10 times. It is the normal action of the market.

So what is my take? Well based on all the information I have available to me today, I believe the S&P will power higher, resuming its uptrend and have a good shot at taking out the 1215 December 2004 swing highs.

Now on to the next chart. It is of the Japanese Nikkei.

I previously created a mini video report on this index which also has IShare tracking shares (symbol EWJ). In that report I stated that I believe the Nikkei is at a significant bottom formation and is likely set up to make a sustained breakout move above its reverse head and shoulders neckline of 12,000.

I still believe that is the case.

Here is my latest chart:

Note the green colored arrow points to what is known as a double inside day (quarterly price bar is colored in blue). Many times, these double inside days preceed big price moves in either the up or down direction.
Note that again I have drawn the neckline of the reverse head and shoulders.

I believe that an explosive breakout still awaits the Japanese Nikkei index and that we are soon approaching that point. A decisive move above 11,600 would be early indication, that the boat has been set in motion. In the little chart inset, note that the index has formed somewhat of a messy downward slanting flag pattern, a bullish pattern. It is now perched right up on the edge of the downtrendline that makes up the flag. The flag is a bit messy, but nevertheless seems valid. Let me put it this way, I would rather see a messy down slanted flag then an upslanting wedge pattern.

I am going to stick my neck out here and say again that I think the Nikkei will be a headliner soon, perhaps before the end of the first quarter of this year. This could be a huge, dare I say it, longer term buy opportunity… that will only be truly recognized years later.

And finally, I would probably be remiss without a brief mention of google. Clearly, they are the 12 cylinder engine of the internet.. I use their search engine all the time and I love it. I also use their new email service ‘gmail‘, and I love that even more. It is in fact the best email application (web based) that I have ever used. And I get a whole gigabyte of storage! wow. That is real value being offered for free. I can see them dominating the web based email market within a year or two. Right at this moment you can be sure that yahoo and microsoft are scrambling, to redesign their web based email networks. Email is such a powerful application and will probably do wonders for google’s bottom line as we head deep into 2005. Intriguingly, google still officially has their gmail email service in beta, offering current users the ability to send ‘gmail invites’ to others.. perhaps they will leave it in beta for quite some time? This gives gmail a higher perceived value and maybe even will grow the user base faster than if they had done a regular release of the service. What I love about google is that they get back to basics. Within the email application there are no banner ads, no loud flashing icons, in fact there are almost no images at all. The only thing that occasionally shows up is their google adwords text advertisements and the are damn useful too! What a concept.. useful advertising.. I was writing an email to some family members about empanadas, a south americna specialty food, and sure enough there was a relevant ad for some companies selling this rare food item… that is genious in my book, and I clicked on the ad too! Adding .05 pennies to google’s earnings release… :razz: . But the bottom line is they design web pages that are clean and pleasing to look at. They design them for readers, and for those that seek information. Hmmm, kind of what I am doing here at Trading Top 100 Forum… :smile:

Anyway, the google chart shows indeed that the breakout GOOG did over its CREEK is valid based on volume. However, it remains to be seen whether or not this price bar will be an upthrust. Upthrusts do not necessarily mean bearish ending price action. When they occur, they do show that short sellers are blasted out of the stock and new longs are sucked in as well. The key now will be to see how GOOG reacts and to its ICE or new support level at 200. If it breaks back down inside there then it would indicate that it was indeed an upthrust, and that more cause building between 165 and 200 is necessary before a real breakout. On the other hand, if we hold 200 and the retest is on relatively lighter volume, GOOG could be setting up for a run. For now, things are inconclusive. Lastly, it should be mentioned that the high of today will eventually be retested given the extraordinary volume that came in today.

Ok thats it for today…

Sincerely,

Thomas

P.S. It may be some time before my next post. I have some personal business that will delay me from adding to this site. How long? I don’t know yet. I suspect though that by the time I am back the S&P will be hitting new all time highs.

Peace.

Im out…

2005/02/05 | International Markets - S P 500 | Trackback | No Comments »

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