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
As was leaked earlier today by Reuters, which reported that OPEC could announce an output-freeze deal on Wednesday in Algeria, although full details are unlikely to be firmed up before a formal meeting of the Organization of the Petroleum Exporting Countries in November, moments ago Reuters blasted that this is precisely what OPEC has decided at its Algiers meeting, when it announced that a deal to limit oil production has been reached, however the execution won't take place for another two months.
Tom Russo’s letter to Semper Vic Partners investors for the second quarter ended June 30, 2016.
TO: LIMITED PARTNERS OF SEMPER VIC PARTNERS, L.P.
Results for Semper Vic Partners, L.P. for Second Quarter 2016, appear below, along with cumulative performance since L.P. conversion in July 1990. Partnership results are presented net of advisory fees and are compared to market indices whose returns include reinvested dividend income:
Semper Vic Partners
Investment Position and Outlook
While my “global value” equity investors have generally enjoyed positive results year-to-date, there is little about today’s global political forces and...
A couple days ahead of the informal OPEC meeting in Algiers regarding the stability of oil prices, Algeria has announced its plans to privatize their state banks in reaction to the decreasing price of oil, according to a senior financial official interviewed for Reuters, and like Saudi Arabia, appearing to hunker down and ride out the low-priced environment that is likely here to stay.
The official, who wished to remain nameless, said that Algeria’s government would enact reform...
A decision by the U.S. Securities and Exchange Commission may bring European Union banks a step closer to avoiding billions of dollars of capital charges on their trades in derivatives and other securities.
In early 2009, the seven largest publicly traded college operators were worth a combined $51 billion. Today, they’ve been all but wiped out.
When Barack Obama took office, America’s seven largest publicly traded college operators were worth a combined $51 billion, with more than 815,000 students enrolled at campuses spread across the country. The schools were flooded with with people seeking shelter from the recession, returning to school to pick up new skills.
Almost eight years later, the industry has been decimated. The seven largest listed operators are worth just over $6 billion, and the most valuable co...
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I was so pleased yesterday by the announcement that I have joined the Research team at GoldCore as it meant that I could finally start talking about it and was back in a role that lets me indulge in my passion by researching and geeking out on all things gold, silver and money.
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Epizyme was founded in 2007, and trying to create drugs to treat patient's cancer by focusing on genetically-linked differences between normal and cancer cells. Cancer areas of focus include leukemia, Non-Hodgkin's lymphoma and breast cancer. One of the Epizme cofounders, H. Robert Horvitz, won the Nobel Prize in Medicine in 2002 for "discoveries concerning genetic regulation of organ development and programmed cell death."
Before discussing the drug targets of Epizyme, understanding epigenetics is crucial to comprehend the company's goals.
Genetic components are the DNA sequences that are 'inherited.' Some of these genes are stronger than others in their expression (e.g., eye color). Yet, some genes turn on or off due to external factors (environmental), and it is und...
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