Technical analysis 101

April 29, 20134 Comments

Allow me to refresh our minds on a basic premises within Technical Analysis.

If you have been studying technical analysis for longer than a week, you are likely aware of the definition of an uptrend. You know the drill: an uptrend is demonstrated by a series of higher highs and higher lows. This is the basis of technical analysis- the equivalent of knowing what a PE ratio is within fundamental camps. Now lets take it a step further. The basis of a potential break in an uptrend is….wait for it…a discontinuation of high highs and higher lows. Thus, a low that falls below the last low signals a potential break in that uptrend. Should a lower high take place in addition to the lower low, you have the very high likelihood of a break in the uptrend. A bear may be in the works.

 

Take a look at this weeks S&P chart. What do you see. Hint- I’ve circled an important event for your viewing pleasure.

The last low, as my circled chart indicates, was lower than the prior one.

The market must see a new high that ties out the last high of 1593 pretty soon. Otherwise, the  current uptrend is in very real danger.

 

The coming days and weeks will be telling.

 Keith on BNN MarketCall

I’m on “MarketCall Tonight” this Friday May 3rd at 6:00pm. Go to the BNN website to send questions on your followed stocks for the show.

4 Comments

  • Hi Keith,

    Does the price action of the last couple of days at new all-time highs point towards a bullish break-out rather than the expected correction or new bear market, or am I interpreting the resistance level too literally? It’s hard to imagine a new bull run beginning with so many technical and seasonal headwinds, not to mention from overbought levels.

    Thanks for the great blog.

    Mark

    Reply
    • The Dow Jones Industrial Average briefly traded above the 15,000 level on Friday. Traders have a tendency to grasp onto round numbers, but the Dow’s first close above them tends to lead to short-term reversals at the least. I’ve shown on a prior blog that new highs dont always mean a new bull market–I remain cautious. I just cant see a continuation of this bull without a break soon–and the longer it takes, the more it will hurt. That said, I still have 60% stock weighting in my model, so upside isnt a terrible thing for mei either.

      Reply
  • Tying in to your response to Mark, I have to ask :

    Could it possibly be a good time to consider getting into a Bear S&P ETF, such as Horizon’s HSD ?

    I’m not a technical specialist, but I checked the range for the S&P from 96 to now. It looks almost prophetic…

    * Note : just finished reading SmartBounce, which I greatly enjoyed.

    Reply

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