Technical Analysis Explained

Transcription

1 Technical Analysis Explained Presented by Martin J. Pring

2 Three Points to Take Home. 1. Prices are determined by psychology, people s attitude to the emerging fundamentals not the fundamentals themselves. 2. Keep things simple and apply common sense at all times. 3. Only use approaches that make sense to you.

3 Real Earnings are not Correlated to Stock Prices ( ) 4 Inflation Adjusted Equities Shiller Real Earnings (10-year MA)

4 Deflated US Stock Prices versus Shiller P/E Ratio CPI Adjusted S&P Composite Deflated US Stock Prices Shiller P/E??

5 Definition of Technical Analysis: The art of identifying a price trend reversal at a relatively early stage and riding on that trend until..the weight of the evidence shows or proves that the trend has reversed.

6 In technical analysis we are dealing in probabilities, never certainties.

7 The hopes and fears of all market participants are reflected in one thing.the price!!

8 Technical analysis assumes that prices move in trends.

9 Trends have a tendency to perpetuate because...

10 Prices in any freely traded market are determined by the attitude of all market participants to the underlying fundamentals.

11 A trend is a trend is a trend. Always assume the prevailing trend is in existence.

12 There is no known technique for determining the duration and exact magnitude of a price move. We can only recognize a change in direction.

13 It doesn t matter what time frame you are following... the principles of technical analysis remain constant.

14 The only difference is the longer the time frame, the greater the significance of any given trend reversal.

15 It doesn t matter what security you are following... the principles of technical analysis remain constant. If human nature ever changes technical analysis will die!!

16 Trends

17 What is a trend?

18 Market Cycle Model Short-term trend 2 to 6 weeks Intermediate trend 6 weeks to 9 months Primary trend 9 months to 2 years 3-4-years Source: Yelton Fiscal

19 Market Cycle Model Short-term trend 2-6- weeks Now Becomes.

20 Intraday Market Cycle Model Short-term trend 4-12 hours Primary trend 2-6 weeks Intermediate trend 4-12 days

21 Psychology and Momentum

22 Keycorp Keycorp Earnings up Price down Earnings Earnings up

23 Keycorp Keycorp Price down Earnings up Earnings Earnings up

24 Ebay Price sideways to down Ebay Earnings Up Ebay Earnings

25 Calculating a Price Oscillator S&P Composite 13-week moving average. S&P Composite (1/13 Price Oscillator) Price oscillator appears on the next chart.

26 Stock Sentiment vs Stock Momentum S&P Composite (1/13 Price Oscillator) Bullish Advisors 1/13 Price Oscillator* * Source Investors Intelligence.com

27 Stock Sentiment vs Stock Momentum S&P momentum Bullish advisors momentum

28 Bond Sentiment vs Bond Momentum Govt Bond Prices) Bond Bulls (10-week MA)* 14-week RSI (10-week MA) *Source Market Vane

29 Primary bear market lasts 1 to 2 years Primary bear Primary bull market lasts 1 to 2 years

30 ... means that the price will very likely rally. Oversold in a bull market...

31 ... probably means the top of the rally. Overbought in a bear market...

32 Followed by a trading range Overbought in a bull market

33 Followed by a trading range Oversold in a bear market

34 Doesn t necessarily result in much of a rally Oversold in a bear market

35 Goldman Goldman Sachs Sachs Commodity Commodity Index Index Bull trend 30-day ROC Bear trend Bear trend Extreme overbought is a bull market characteristic

36 Goldman Goldman Sachs Sachs Commodity Commodity Index Index 30-day ROC Extreme overbought is a bull market characteristic

37 Psychology and One and Two Bar Price Patterns

38 Outside bars

39 Outside bar Encompasses trading range of previous bar and then some!! We want the close to be in the lower end of the trading range.

40 Close should be in the upper part of the range. Encompasses trading range of previous bar and then some!!

41 Measuring the Significance of Outside Bars 1. The wider the bar and the wider the difference between the open and close the better. 2. The sharper the preceding rally (reaction for a down reversal) the better.

42 Bank of India Daily Bank of India Outside bar

43 Two Bar Reversals

44 Sharp rally

45 Closes near the high First bar opens near the low.

46 Second bar opens near the high Closes near the low

47 Resistance zone The lower the resistance zone the better.

48 CRB Composite Two bar reversal

49 Look at Different Time Frames

50 December 2006 British Pound IMM 10-minute bar False breakout

51 December 2006 British Pound IMM Hourly bar Two bar reversal signals false breakout

52 December 2006 Dow 30-minute bar Not much of a reversal signal.

53 December 2006 Dow Hourly bar Strong two bar reversal

54 December Australian Dollar minute bar No reversal signals here!!

55 December Australian Dollar 2006 Hourly bar Instant confirmation Two bar reversal

56 December Australian Dollar 2006 S&P ETF (SPY) Two bar reversal Outside bar Outside bar

57 Partial Checklist for Identifying a Stock Market Peak Strong economy Preceded by rising short-term interest rates. Rotation already moved to earnings driven sectors. RS momentum of leaders rolling over. Market breadth leads the way down. Net new highs diverge negatively

58 Partial Checklist for Identifying a Stock Market Peak Long-term momentum peaking. Confirmed by trendline breaks and negative 12- month MA crossovers. Bullish sentiment. Question is no longer if, but when and by how much is the market going higher?

59 S&P versus the Economy

60 S&P versus Bond Yield Momentum

61 Sector Momentum Position August Inflation/Deflation Ratio) KST Green highlights show when KST is rising.

62 World Stocks versus Long-term Momentum

63 S&P versus the Economy 15/16 and 6/6

64 pring.com and pringturner.com The End Register for timely articles and chart packs pring.com and pringturner.com