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
Chinese manufacturing remains in contraction for 2014. Output and new orders were down for the 4th consecutive month, but at a slightly reduced pace according to the HSBC Flash China Manufacturing PMI.
Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co - Head of Asian Economic Research at HSBC said:
“The HSBC Flash China Manufacturing PMI stabilised at 48.3 in April, up from 48.0 in March. Domestic demand showed mild improvement and deflationary pressures eased, but downside risks to growth are still evident...
Delhaize Group (Euronext Brussels: DELB, NYSE: DEG), the Belgian international food retailer, announces that it has signed an agreement with Tropic Group B.V. on the sale of its Bosnian & Herzegovinian stores.
Delhaize Group has signed an agreement with Tropic Group B.V., to divest all of its 39 Bo...
On Friday Russia’s parliament voted to write off roughly 90 percent of North Korea’s debt as Moscow seeks to build a gas pipeline through the Hermit Kingdom.
This weekend Reuters reported that Russia’s Duma voted to write off roughly $10 billion worth of the debt that North Korea owes Moscow from the days of the Soviet Union. The vote ratified an agreement made in September 2012, after a meeting between th...
We continue in this "V shaped" move off last week's touch of the 200 day moving average on the NASDAQ. The S&P 500 gained 0.41% and the NASDAQ 0.97%. The indexes are nearing overbought near term so a day or two of rest would serve the bulls well to try to attempt a new leg higher. In economic news existing home sales hit 4.59 million in March, versus a 4.55 million estimate.
In terms of the indexes the S&P 500 stalled at the trend line that connected the lows of summer 2013; some congestion lies ahead at year highs.
The NASDAQ has come back from deeply oversold conditions as this index is heavy with biotech and momentum stocks. The dotted blue line is the previous high; since early March we have not seen the NASDAQ make...
Bunge Limited (BG) is the world’s largest processor of soybeans. It is also a major producer of vegetable oils, fertilizer, sugar and bioenergy.
When commodities got hot in 2007-08, Bunge’s EPS shot up and the stock followed, rising 185% in 19 months.
The Great Recession took its toll on operations, dropping EPS to a low of $2.22 in 2009. Since then profits have recovered. They ranged from $4.62 - $5.90 in the latest three years. 2014 appears poised for a large increase. Consensus views from multiple sources see BG earning $7.04 - $7.10 this year and then $7.83 - $7.94 in 2015.
Shares in Las Vegas Sands Corp. (Ticker: LVS) are up sharply today, gaining as much as 5.7% to touch $80.12 and the highest level since April 4th, mirroring gains in shares of resort casino operator Wynn Resorts Ltd. (Ticker: WYNN). The move in Wynn shares appears, at least in part, to follow a big increase in target price from analysts at CLSA who upped their target on the ‘buy’ rated stock to $350 from $250 a share. CLSA also has a ‘buy’ rating on Las Vegas Sands with a $100 price target according to a note from reporter, Janet Freund, on Bloomberg. Both companies are scheduled to report first-quarter earnings after the closing bell on Thursday.
Yesterday, the market continued its winning ways for the fifth consecutive day. The S&P 500 closed within 1% of its all-time high, and the DJI was even closer to its all-time high. Healthcare, Energy and Technology led the sectors while Financials, Telecom, and Utilities finished slightly in the red. All three sectors in the red are typically flight-to-safety stocks, so despite lower than average volume, the market appears poised to make new highs.
Mid-cap Growth led the style/caps last week, up 2.87%, and Small-cap Growth trailed, up 2.22%. This week will bring well over 100 S&P 500 stocks reporting their March quarter earn...
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[Facebook] The social network is only weeks away from obtaining regulatory approval in Ireland for a service that would allow its users to store money on Facebook and use it to pay and exchange money with others, according to several people involved in the process.
The authorisation from Ireland’s central bank to become an “e-money” institution would allow ...
I just wanted to be sure you saw this. There’s a ‘live’ training webinar this Thursday, March 27th at Noon or 9:00 pm ET.
If GOOGLE, the NSA, and Steve Jobs all got together in a room with the task of building a tremendously accurate trading algorithm… it wouldn’t just be any ordinary system… it’d be the greatest trading algorithm in the world.
Well, I hate to break it to you though… they never got around to building it, but my friends at Market Tamer did.
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Ladies and Gentlemen, hobos and tramps,
Cross-eyed mosquitoes, and Bow-legged ants,
I come before you, To stand behind you,
To tell you something, I know nothing about.
And so the circus begins in Union Square, San Francisco for this weeks JP Morgan Healthcare Conference. Will the momentum from 2013, which carried the S&P Spider Biotech ETF to all time highs, carry on in 2014? The Biotech ETF beat the S&P by better than 3 points.
As I noted in my previous post, Biotechs Galore - IPOs and More, biotechs were rushing to IPOs so that venture capitalists could unwind their holdings (funds are usually 5-7 years), as well as take advantage of the opportune moment...
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