Posted by barkand on September 25, 2010 under Uncategorized | 
Investors, as opposed to traders, should be interested in this weekly chart of Diageo (DEO). A long-term ascending triangle has formed, with the $70 mark providing the resistance. The stock is now testing this area for the third time in 2010. The first attempt resulted in a shooting star, and 6 weeks later the shares were under $60 (we’ll ignore the “flash crash” data point). During the summer, it tried and failed again, finding support at the lower trendline which was around $65 at the time. And now, here we are again.
This looks like a textbook chart pattern – especially if you consider the pattern to have begun in the spring with the first run to $70. Usually an ascending triangle should resolve itself within a few months. I extended the trendlines going backwards because they do seem to have some significance. You can see, also, that volume has dried up with each successive push toward the upper trendline.
So where does DEO go from here? It should break through $70 with a first price target in the low $80s (roughly the height of the pattern beginning with the first test of $70) with possibly a longer term target of reaching three figures based on the larger pattern. Of course, the markets do not always do what they “should” do. So a conservative approach on this one would be to wait for a couple weekly closes above $70 before jumping in.
Posted by barkand on September 23, 2010 under Interest rates, Volatility |
Tom McClellan had a very interesting entry on one of the MTA members-only blogs recently. He showed how the direction of theVIX followed the interest rate on 3-month Treasury bills, on a 2 year lag. Short-term interest rates plummeted in late 2008 into the beginning of 2009. So now, two years later, we might expect to see the VIX drop to very low levels. With the VIX being somewhat negatively correlated with the stock market, and considered a measure of “fear”, this would suggest good times for the stock market in the coming months.
This is a really excellent example of how technical analysis can go beyond simple chart reading to make connections between markets.
Posted by barkand on September 19, 2010 under Bollinger bands, Commodities |
This blog is re-started today with a long-term look at oil priced in gold. Here we see prices stabilizing at around .06 ounces of gold per barrel of oil, with quickly contracting Bollinger bands.
In the coming week, that long “black” candle (red on this chart) in the spring will drop out of the calculation and the bands will become even more tight. Sometime soon, we might expect a squeeze where prices will jump outside the bands and make a strong move. But in which direction?
My guess is that the oil/gold ratio will bump its head on the long-term downtrend line dating back to the middle of 2008, and then fall. Does that mean oil prices will collapse? Or that gold prices will spike higher? Or a combination of both? I don’t know. So, for those with the means to do it, the best way to play it is to be short oil and long gold.
