Posted by barkand on July 23, 2011 under Bollinger bands, Support / Resistance | 
Wendy’s (officially known as Wendy’s/Arby’s Group) may be in the fast food business, but shareholders have been waiting a long time for sustenance. After the Autumn 2008 lows, the stock has made repeated moves toward $5.50 only to run out of energy. The result of all this back-and-forth action is a lid on prices around $5.50 – 5.60 and a rising support line now sitting at $4.70.
The shares have been resting just below the $5.50 area for a couple weeks now and could be poised to finally break through long-term resistance. Notice how volume has consistently been stronger in up weeks than in down weeks throughout 2011. A good sign of accumulation. We would view a weekly close decisively above $5.60 as very bullish. Such a move, if it happens, would almost certainly be accompanied by heavy volume.
Another interesting aspect of this chart is a variation of a Bollinger band “squeeze”. Back in May the weekly band width became more narrow than it had been in a long, long time. Prices then went the “wrong” way, touched the long-term trend line, then sprung back in the opposite direction. Of course, the same conditions were present several months earlier and nothing happened.
Posted by barkand on July 21, 2011 under Commodities, Correlation |
If you read the popular books on intermarket analysis, or just search the internet for about 2 minutes, you will find that copper is highly correlated with just about everything at one time or another.
Since the start of the financial crisis, copper has been highly correlated with the U.S. stock market. We can remember reading one article which implied that the stock market was causing the price changes in copper. But that clearly is not the case. As you can see on the chart below, the copper market tends to change direction before the equity market. We have marked three bottoms in the markets which most clearly illustrates this phenomenon.
This relationship probably will not last forever. But for now, we can expect the stock market to remain healthy with copper prices near new highs.
Posted by barkand on July 11, 2011 under Classic chart patterns, Currencies, Point and figure charts |
For several years now, the only times that the market has shown any interest in the U.S. dollar ($USD) is when the dollar appears to be less ugly than the alternatives. Based on how the charts have developed, we feel that the dollar has now reached a critical point. Will the downtrend continue? Or can the dollar actually have something resembling a rally? It is perhaps a bit early to become aggressively bullish, but we are on the lookout for some positive movement in the dollar.
First up is a weekly candlestick chart going back two years. There are many different things converging here.
- The dollar is now hitting the long-term trendline (the dashed red line) from the 2010 highs. Can the dollar break through it or will the resistance be too strong?
- There is also a short-term symmetrical triangle (the solid green lines) forming from the last two months of movements. This is usually a continuation signal, which is to say the dollar should continue getting weaker.
- On the other hand, the dollar recently managed to make a bottom without tagging the lower Bollinger band. We interpret this as meaning that the market is shifting to a more bullish position.
- And then there is the width of the Bollinger bands themselves, plotted below the main chart. The distance between the bands has reached its most narrow point since early 2010. We should now be on the lookout for a significant move – either up or down.
If (and it is really only “if”) the dollar could get stronger from here, we can see it going to the high-78 area based on the size of the triangle.
To help us make up our mind, let’s consult a point-and-figure chart of $USD. We use the daily high-low method as the currency markets do not “close” the same way as other markets. Here, we are using a quarter-point box with a 3-box reversal. On this point-and-figure chart we can see the same symmetrical triangle from the candlestick chart above. However, interpreting a symmetrical triangle on a 3-box reversal chart is not so clear. If the pattern is “big enough” it can be a reversal rather than a continuation. Is this one big enough?
Also notable on this chart is that a high above 75.25 — which may happen today — would generate a new column of Xs. The chart would recognise that the short-term trend is up. But even if it did happen, the market could then quickly reverse into a new column of Os and we could still consider ourselves to be inside the triangle.
If we do go out of the triangle in an upward direction, the chart has previously provided a price target of 82 based on the reversal from the April low. That could be revised according to the amount of energy behind whatever breakout does occur.
So far we have identified a target of maybe possibly 79 and another at 82. Let’s go back to the candlestick chart, this time with Fibonacci retracement values superimposed. Guess what? There is one resistance level in the high 78 area and another just above 82.
What does it all mean? We believe a big move in the U.S. dollar is coming, and soon. Our guess is the big move will be in an upward direction. However, we are not selling body parts for dollars at this time. We are more comfortable with waiting and watching intently for the next week or two while the market decides what it wants to do.
Posted by barkand on July 6, 2011 under Classic chart patterns, Commodities |
Silver prices have quieted down very much ever since the dramatic run-up in the winter and subsequent drop in the spring. It looks to us like silver is forming a descending triangle, with the base established in mid-May. If that is the case, we should expect prices to break decisively through the high $33 area sometime soon. A month ago, Tom McClellan had suggested silver could fall further based on the price action after the Hunt brothers bubble of 1980.
Looking at a couple other technical indicators, we get mixed signals. Or maybe it is just noise. On the chart below, we have overlaid the Fibonacci retracement levels for the triangle and also included RSI. We note that the last two tags of the upper boundary of the triangle occurred at Fib retracement points. It could simply be a coincidence. You will notice one other peak within the triangle did not happen at Fib levels. And if silver prices ignore the Fibonacci retracement and continue higher over the next day or two, it will probably kill our triangle theory.
And then there is RSI. It is currently sitting just below 50, which often generates resistance to advancing prices. On the other hand, the last tag of the lower bound of the triangle did not produce a similarly low value of RSI. But why should it have done so? A descending triangle, by definition, will have less and less downward movement as the triangle develops. So the ratio of up movement to down movement should become less extreme. We realize that some people would have a bullish interpretation of the RSI divergence with prices, but we are not buying it.
Posted by barkand on July 5, 2011 under Relative strength |
Shares of Electronic Arts (ERTS) finally kicked into bullish mode last winter, and haven’t looked back. Prices are at levels not seen since the crash of 2008. Although if you look at the far left hand side of the chart below, you can see there is a long way to go to reach pre-crash highs.
The first two sub-charts below compare the price performance of ERTS relative to Take Two (TTWO) and Activision (ATVI) respectively. We see that ERTS had been underperforming both for quite some time. However, for the last half year, ERTS has been the best of the three.
On an absolute basis, the shares have held above the 20-week moving average ever since last winter’s breakout. It is not clear whether ERTS has enough energy to get back to the $40s. For now, though, we see no reason for the current uptrend to come to an end.
