The following trading lesson has been adapted from Jeffrey Kennedy’s eBook, Trading the Line – 5 Ways You Can Use Trendlines to Improve Your Trading Decisions. Now through February 7, you can download the 14-page eBook free. Learn more here.
"How to draw a trendline" is one of the first things people learn when they study technical analysis. Typically, they quickly move on to more advanced topics and too often discard this simplest of all technical tools.
Yet you’d be amazed at the value a simple line can offer when you analyze a market. As Jeffrey Kennedy, Elliott Wave International’s Chief Commodity Analyst, puts it:
“A trendline represents the psychology of the market, specifically, the psychology between the bulls and the bears. If the trendline slopes upward, the bulls are in control. If the trendline slopes downward, the bears are in control. Moreover, the actual angle or slope of a trendline can determine whether or not the market is extremely optimistic or extremely pessimistic.”
In other words, a trendline can help you identify the market’s trend. Consider this example in the price chart of Google.
That one trendline — drawn between the lows in 2004 and the lows in 2005 — provided support for a number of retracements over the next two years.
That’s pretty basic. But there are many more ways to draw trendlines. When a market is in a correction, you can draw a trendline and then draw a parallel line: in turn, these two parallel lines can create a channel that often "contains" the corrective price action. When price breaks out of this channel, there’s a good chance the correction is over and the main trend has resumed. Here’s an example in a chart of Soybeans. Notice how the upper trendline provided support for the subsequent move.
For more free trading lessons on trendlines, download Jeffrey Kennedy’s free 14-page eBook, Trading the Line – 5 Ways You Can Use Trendlines to Improve Your Trading Decisions. It explains the power of simple trendlines, how to draw them, and how to determine when the trend has actually changed. Download your free eBook.
This article was syndicated by Elliott Wave International and was originally published under the headline How a…
A holiday-shortened week combined with little news provided the backdrop for a light volume positive week with the major indexes posting 5% gains. Earnings season begins Monday July 12, starting off with Alcoa Inc. and followed by dozens of other companies. The S&P is bumping up against several technical resistance lines. After falling over 13% since the April highs, last week’s recovery pushed the SPX to 1077.
On the chart below, our trend line drawn through the April highs and June rebound-highs indicates that the SPX is right at trend-line resistance. The 50-day Moving Average also looms just above as another possible resistance area.
The 14-day RSI at 42.4 remains below a more bullish 50, and the 12-26-9 MACD at -13.6 remains shy of a bullish signal line at zero. Factoring in the lack of volume in last week’s 5% rebound (and possible lack of conviction), the chart-evidence leads us to believe that the market isn’t ready to continue the uptrend in the short-term. Notice all four positive days last week had volume below the 50-day Moving Average. Greater declining volume on Thursday and Friday isn’t particularly encouraging.
Analysts are projecting that second-quarter earnings of S&P 500 companies rose 42 percent, according to S&Ps Silverblatt. Investors will again be watching the earnings and revenue figures along with guidance as concerns over a double-dip recession remain. The Dark Horse Hedge maintains a SHORT tilt in our Long/Short approach to achieving higher Alpha (return over benchmark return) and Sharpe Ratios (return for each unit of risk taken) with a low Beta (correlation to market move and direction--i.e. we’re striving for less correlation to market movement).
We will be watching the trend lines and technical signals this week to add new posititons. If the market struggles and can’t penetrate the trend line, we will likely recommend adding 2 SHORTS and 1 LONG position. In contrast, if the market reacts well to early earnings announcements and can break through the trend line, it is likely that the RSI and MACD will confirm a move through the 50-day Moving Average and provide reason to go to a BALANCED position by adding 2 LONGS.
We are continuing to hold our previously entered (July 1, 2010) short and long positions:…
Eventually all trends change. If you are short at a market low you need to know when to cover and get out. Likewise if you are long at a market high, here too you need to know when to get out. This is where Change In Trends patterns come into play.
At All About Trends typically there are three chart patterns we look for when it comes to change in trends. Considering we are at one-year highs we’ll focus upon change in trends from up to down. Those three chart patterns are: Double Tops, Trendline breaks and First Thrusts Down. Below are examples of each.
A Double top is just that. There are variations to this pattern though. One such variation is that of a shake out high. This is where an issue breaks above the prior high by a smidge and then rolls back over much like a shake and bake. The other variation is that of a continuation high. This is where an issue is further along in a correction then goes thru a rally period much like a snap back rally then proceeds to put in a double top an rolls over.
Below is a recent example of a name we shorted earlier in the year and below that is a continuation double top example
Below is DRYS in a continuation double top. As you can see the issue has been in a correction for months then gets a retracement rally and that retracement rally ends with a double top.
Trend Line Breaks This is rather self explanatory in the sense that it’s simply all about a trendine break. Just remember bigger is better. The bigger the pattern in time duration and scope the better. Just take a look at TSL from January.
First Thrusts Down
This is when an issue is in a clearly defined uptrend that all of a sudden falls to either a prior support level or the 50 day average as in the case below (The Blue Box is the first thrust down), then it proceeds to make a rally attempt (Everything above the pink line). We call that rally attempt a snapback rally
In 1968, Paul Ehrlich released his ground-breaking book The Population Bomb, which awoke the national consciousness to the collision-course world population growth is on with our planet's finite resources. His work was reinforced several years later by the ...
NEW YORK – The problems with China’s economic-growth pattern have become well known in recent years, with the Chinese stock-market’s recent free-fall bringing them into sharper focus. But discussions of the Chinese economy’s imbalances and vulnerabilities tend to neglect some of the more positive elements of its structural evolution, particularly the government’s track record of prompt corrective intervention,...
readtheticker.com is primarily a Richard Wyckoff logic site, however through our research into Wyckoff logic the three indicators below make us very lazy in applying Richard Wyckoff logic.Why? Because if these indicators look handsome together then it most likely the Wyckoff logic is working very well.
These three indicators are NOT a trading system, but they do help with finding excellent well support accumulated stocks that show Mr Market is supporting them. Of course when indicators look ugly they will show stocks in a breakdown, thus less support by Mr Market.
If the large market plays are accumulating the stock then they will control the range of BID and ASK and not let th...
This chart looks at the Thompson/Reuters Commodity Index on a monthly basis for the past 50 years
The index took off in the early 1970’s and rallied over 200% in a little over a decade at (1). Then it created a potential double top. What followed at (2)? An unwinding of the rally that lasted nearly 20-years, taking it to the bottom of its rising channel.
In the early 2000’s, the index took off again, gaining over 250% in a decades time at (3) and the rallied looks to have ended in 2011, as it was hitting the top of this long-term rising channel.
Since hitting the top of the channel the index has been pretty soft,...
As oil prices tanked, hedge-fund managers and other large speculators increased bullish bets on Treasury securities to the most in two years, even as the Federal Reserve moves closer to raising interest rates.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, including a sector rotation strategy using ETFs and an enhanced version using top-ranked stocks from the top-ranked sectors.
Corporate earnings reports have been mixed at best, interspersed with the occasional spectacular report -- primarily from mega-caps like Google (GOOGL), Facebook (FB), or Amazon (AMZN). Some of the bul...
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Baxter Int. (BAX) is splitting off its BioSciences division into a new company called Baxalta. Shares of Baxalta will be given as a tax-free dividend, in the ratio of one to one, to BAX holders on record on June 17, 2015. That means, if you want to receive the Baxalta dividend, you need to buy the stock this week (on or before June 12).
Back in December, I wrote a post on my blog where I compared the performances of various ETFs related to the oil industry. I was looking for the best possible proxy to match the moves of oil prices if you didn't want to play with futures. At the time, I concluded that for medium term trades, USO and the leveraged ETFs UCO and SCO were the most promising. Longer term, broader ETFs like OIH and XLE might make better investment if oil prices do recover to more profitable prices since ETF linked to futures like USO, UCO and SCO do suffer from decay. It also seemed that DIG and DUG could be promising if OIH could recover as it should with the price of oil, but that they don't make a good proxy for the price of oil itself.
Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene
The replay is now available on BNN's website. For the three part series, click on the links below.
Part 1 is here (discussing the macro outlook for the markets)
Part 2 is here. (discussing our main trading strategies)
Part 3 is here. (reviewing our pick of th...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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