Stockcharts.com, as well as other charting software services, offer a tool known as the “ZigZag” tool. The ZigZag tool is not an indicator—it simply filters out smaller price movements. Stockcharts has a default setting of 5% (although you can change this as you wish). The 5% setting ignores all price movements less than 5%, so we can see the forest instead of just trees, as Stockcharts describes it.
I’ve taken the default 5% retracement level on the ZigZag tool and applied it to a weekly chart on the DJIA. I’ve marked the time between corrections that occurred after a rally lasting more than a month. Sideways volatility up/down movements are thus ignored. This may be of interest to readers, given the Dow’s new breakout through the 17,000 level. What I’d like you to observe is the length of time since our last 5% + correction. As you can see on the chart, we’re normally due for some type of corrective action that exceeds a 5% after about 5 months. We’re well into the time frame now. It will be interesting to see just how much longer this market can rally until the next correction.
Keith on BNN
I’ll be on BNN’s MarketCall on Thursday July 17th, 2014 at 6:00pm. Phone in with your questions on technical analysis for Keith during the show. CALL TOLL-FREE 1-855-326-6266. Or email your questions ahead of time (specify they are for Keith) to [email protected]
Back next week
I’m only blogging once this week, as I’m on vacation. But I’ll post my usual two blogs next week when I return.
5 Comments
We learn something from each of your blogs. Thanks. A question about the Investor’s Digest article. The recommendation from Horizons etf’s, HFR is a rather complicated structure. It is Horizon’s job to explain it to me but in general how do you understand the risk associated with this ETF, downside potential, and yield and NAV variability.
It does have a little bit of complexity – but Fierra is the one manager who is competent enough to run such a program. the risk profile has been quite acceptable. I’d recommend you contact Horizons for full details on their swap process.
Keith: Brooke just released his July report and 2 sectors in there caught my eye and I’d appreciate your perspewctive.
1) Utilities: I recall you have owned ZUT in the past. Seasonal strength begins July 17. Are you a buyer at this time or what will you require to enter this sector?
2) Gold metal- July is the beginning of the seasonal strength. Will you be a buyer and if so how high do you think it can go and why.
Thanks
ZUT: Im not buying it at this time–technically it has a dollar upside to about $16.40, but that’s not enough to get excited about. I sold it at $16 a while ago in my managed equity model–although I hold it for a few long termed “buy/hold” non-managed client accounts for a few select clients–more for the dividend.
Gold: I blogged on this recently, and yes, may buy upon a confirmation of breakout as noted on my blog
I hope you had a relaxing vacation Keith. Looking forward to your appearance on BNN this Thursday.