We know who is going to get our economy out of this funk and get us on to the next bull market cycle. It’s not the government, it’s not some stimulus package — IT’S YOU!

The way you are going to do that is by taking control of YOUR destiny and by having a plan and trading that plan. It’s ALL ABOUT YOU and empowering you to be the best that you can be regardless of what the market throws at you.

It’s our job to get you to the point where you no longer have to ask “is the market going higher or lower? You won’t care because you’ll just trade what you see, not what you think, hear or fear and you’ll do it according to a plan.

Instead of listening to what all the hoopla herders on TV are saying about it, we’ll revert to our tried and true — that being we let the market tell us what to do by the action it exhibits…

In the really big picture sense as you can see the overall trend is down. Now you know why they call bear markets the “Slope Of Hope.”

By the same token however, within the triangle we are at trendline support so we could make another run for the triangle resistance at 8700. However, before we do that we need to get through the shorter-term resistance level of the chart below.

Moving on to the NASDAQ 100 index, we’ve got more of a stair step downtrend in place.

Nothing new here — just more of the same old same old…

What can we say? It’s all about the green line. A break below it and it’s time to go short on this index. Just remember the following with regards to TRENDS. All downtrends break to the upside and all uptrends break to the downside eventually.

So you see, even if the herd runs the market on the stimulus news, it’s still going to be all about the charts and the charts are telling us we still need to get through resistance levels. And let’s face it — there are a lot of them all the way up.

The big question then becomes what happens after the dust settles? What happens after the stimulus news wears off? That’s where the turning points are assuming a gap up on Tuesday. Remember, the market is the boss.

Notice in the 60-minute chart the full stohcastics are back to being overbought. If this index is going higher, it must break thru the 1280-1300 level — that is resistance. The real key clue as to how far (if at all) this index can go may be to look at (and watch) what some of the kingpins of this index are doing — AAPL and GOOG.

Speaking of kingpins of this index, don’t waste your time looking at MSFT, CSCO, INTC, ORCL as they haven’t gone anywhere in eight years and they are also favorites of the “Managing To A Benchmark” crowd.

When these names break down, the market breaks down. The only difference between these two names and the NDX 100 is that they have both followed through with higher highs year to date vs. the NDX 100 having a hard time breaking through the highs of January.

Dont forget about QID (the NASDAQ short ETF). When it triggers, it usually ends up being a big trade. While we don’t know when or if this will ever trigger, we still need to keep it on the burner. A break above the pink line will likely occur should the market break down.

We’ll let the market guide us by the action it exhibits at key technical analysis levels. So you see whether the market is going up or down, it really doesn’t matter. All that matters is what the charts are telling us.

Regards,
David Grandey

February 17, 2009

Does It Really Matter Where This Market Is Going? was originally featured in the Penny Sleuth.

Technical analysis uses stock chart patterns to make money in the market. Technical charts can be hard to decipher for the uninitiated… with trend lines, candle sticks, and trading channels, understanding charts requires a solid foundation in the anatomy of a stock chart. Are you ready to get “chart smart”?

What is Charting?

Charting is the process of looking at a stock chart to glean information about where it’s going in the future. Just like someone who follows fundamental analysis uses a company’s income statement, balance sheet, and a slew of other financial data to figure out what a company’s prospects are, a stock chart can give a technical trader some hints too.

The distinction between technical investors and fundamental investors is an important one – investors who look at charts think more in the short-term (traders), whereas fundamental analysis (investors) usually takes longer to bear fruit. Technicals usually yield smaller individual gains than a longer-term investor might get from a well-picked fundamental stock, but the frequency of trades is where traders really make their money.

Only around 10% of Wall Streeters are technicians, people who use technical analysis to make their investment decisions. But those ranks are growing.

Even fundamental hedge and mutual funds typically employ traders who are responsible for looking at technicals to follow a portfolio manager’s strategy at the best possible price. That’s largely because experienced traders make money on 90% of their trades.

Finding Charts

Finding good charts is one of the first challenges for investors who are new to technical analysis. While the charts you can find on sites like Yahoo! or Google Finance are useful, they simply don’t provide the shear amount of information that a traders needs to get out of a chart.

If you’re looking for really good real-time charts, lots of services require a subscription fee – but not all.

Your best bet is to turn to your discount online broker. Chances are they provide a real-time charting tool that’s free to use if you’re a client. Otherwise, sites like StockCharts.com and INO.com offer a number of free interactive charts that you can cut your teeth on while you get the hang of charting.

Anatomy of a Stock Chart

So, what’s a chart look like to a trader? Well, take a look at this one:

The first thing you’ll notice is the fact that it’s not a line like most traditional charts – the chart’s made up of a series of boxes called candlesticks. Why the boxes?

Well, unlike a line chart, which only gives you one data point (like daily closing price), a candlestick chart gives you five data points in the same amount of space. In other words, candlestick charts give traders five times as much information as a line chart would.

Candlesticks are especially useful in looking at trends… and after all, trends are an integral part of technical analysis. We’ll take a look at trends next time; for now, let’s look at the rest of this stock chart.

Support and Resistance

Take a look at that support line – it’s a pretty important element of the chart. A stock’s support level is the price that the stock doesn’t want to fall below. It’s like the “floor” for the stock.

On the other end of the spectrum is resistance, the stock’s “ceiling” price. As you can see on the chart above, the price bounced off resistance twice. Bouncing off resistance and support is pretty common because it takes a big catalyst – like an earnings release or a change in market sentiment – to make a stock breakout above resistance or below support.

Now that you know the anatomy of a stock chart, you’re one step closer to start trading, but not so fast. You have to know a thing or two about patterns too – that’s what we’ll look at next time. And if you think technical analysis is your thing, stay tuned – next week we’ll be introducing our first “Trader’s Corner”, where a technical analysis whiz will take you on a tour of what’s going on in the market.

Cheers,
Jonas Elmerraji

February 12, 2009

Technical Charting Techniques Explained was originally featured in the Penny Sleuth.