BAGAKOAA December 12, 2009 It’s time to get technical
BAGAKOAA;
December 12, 2009 It’s time to get technical
OK did you miss me? I had a busy week. And to tell the truth, the market is bit weird right now. All I can do right now is give my opinion but I have taken a few steps backwards in the last week or so. Here is what I think is going on and how to best benefit.
Good news is married to bad news in the media. Corporate earnings are improving but seldom with any top line growth so you have to ask, “Is it sustainable?” So I went back to basics.
Make sure your stocks are still healthy. If you got into something more than 3 months ago, just double check the last earnings report. You can find them anywhere but if you want a link, here it be: http://www.sec.gov/edgar/searchedgar/companysearch.html
Then check on the sector using any of the finance websites like Bloomberg, wsj on line, Morningstar, IBD, etc. Don’t fight the sector right now. If it is weak, take some profits and be patient. If its trending up, be patient.
Lastly, if you really have no life, get technical. That’s right, break out the tea leaves and start studying the charts. As a last resort, get comfortable in understanding how the charts of a stock or a sector can help you decide what your next play might be. If you have been reading this blog for any time at all you know I am not a big proponent of charting. But in a sideways or “trading range bound” market, it can help. I know it’s only been sideways for a couple weeks or so.
Knowing that I could not a clear message on most of my stocks I went back to a classic, my dad’s copy of Technical Analysis of Stock Trends, 5th edition. First published in 1948, it is a primer for understanding charting. Then there is a great website called stockcharts.com. There is some great baseline explanations on the site as well as 12,000 free charts. The subscription side is tremendous, but costly and definitely well above my understanding.
There is no reason to bore you with all of the technical indicators, but a couple might be helpful. One is called Bollinger bands. In a nutshell, it is an algorithmic pair of lines that are an indicator that creates a “trading lane” for your equity or indices. Think of it as a shipping channel on a nautical map. If your stock is trading in the lane, you are probably OK. If it goes out of the lane above the upper band, your stock might be heading out to bullish open water, if it is going out of the channel below, it might be heading into the shallows of bear land. Now keep in mind that contrarians think contrarily. If the stock is above the bands, it is overbought and if it is below the band it is oversold. Because we are talking about statistical analysis, both are right.
The other indicator that is helpful is a stochastic oscillator. I have waited my whole life to use those words. Mmmm, a little anticlimactic. Anyway, the specific oscillator to which I refer is the Williams % R. This can be found on almost any stock website with interactive charts. Look for the overlay called Williams % R (most have set up to use 14 data points, my personal recommendation is to move it out to 28 to round the data just a bit). Once you see that overlay, it is an indicator whether the stock or indices is over bought or over sold. Don’t be scared, just play around with the numbers.
Once you do this, you will start to see patterns. It’s kind of like when you were a kids lying in the grass looking at clouds. “Hey, that one looks like a boat or that one looks like an angel or that one looks like. . . “ Well these patterns on these charts will start to give you some idea about what the stock MIGHT do. BUT, remember that some of those clouds that looked like angels turned out to be thunderheads? Some of these trends can be the opposite of what you think.
Any way, let’s take a look at a couple of charts and see what they look like. If you want to follow along, go to: http://stockcharts.com/charts/
You will see a box called enter ticker. Type in SPX, which is the S&P 500 Large Cap Index, and hit enter. Below the chart under attributes you will see a box called Range. Change it to 6 months and hit update. Then under overlays, leave the 50 and 200 simple moving averages and choose Bollinger Bands. (Leave the 2,20 reference as this determines the standard deviation upper and lower control limits. You can change them but there is no need unless you really get into charting.) Click on update. Then go down to indicators and from the drop down box choose Williams % R 14. In the parameters box, change the 14 to 28 and click on update.
Your chart is complete. Now let’s take a quick look at what it might be telling you. Again this is a composite chart of an indicia with 500 stocks in it so we do not care about fundamentals, or news releases, or CEO drug habits. This is pure data. In fact in the original 1948 Edwards-Magee book they said assume the data knows everything there is to know about a company and its stock.
At the top is RSI or relative strength. If its above 50 it is a bullish sign and if it is below 50 it is a bearish sign. Just use it as a pulse on any stock of indicia. SPX is at 55.89 which is slightly bullish. You can see RSI is in the 50-55 since early November. (Sideways).
In the chart itself you will see two green lines. Those are your Bollinger bands. You can see how the stock trades in that band or “Trading Channel”. Right now it is just above the middle of the Bollinger Band midpoint of 1101. The SPX closed Friday at 1106. The blue line is the 50 day moving average, it too appears bullish. The red line is the 200 day moving average, and it to is headed in the right direction. Below the chart you see the MACD and that is a derivative of a moving average. Personally I don’t use it but it does come up on many charting software. The pro analysts like it because it takes into account momentum and trend. I just use to see if its DIRECTION NOT VALUE is up or down indicating bullish or bearish. In this case its going down just a little so that would be considered a slightly bearish trend. There have been hour long conversations about the cross over points on the MACD charts which just bores me to death probably as much as I am boring you to death right now. But I digress.
Now my favorite is the Williams. Remember this is an algorithmic expression indicating whether the stock or indicia is overbought or over sold. Here is where you can have some fun. Go to the July 20 area on the chart. You’ll see the Williams below -20 from 7-20 through 8-17 and the SPX went from 950 to about 1010 and then corrected. Then there is another nice run til Sep 8 and you can see the Willims %. Keep looking at the William and compare it to the SPX price and you start to see a pattern. Now we have a choppy or sideways pattern since Nov 9. We have a narrow trading range in the Bollinger Bands, a flat lined but bullish Williams, and with a little imagination you can see the physical resistance line at 1101. My guess is, next week, early next week we break though 1101 on the down side and it becomes a buy signal for quite a few institutional people. It will come from certain sectors of the S&P. The downward pressure will come from Financials and Energy and upward pressure will come from healthcare and utilities.
So how do you benefit, just go through this exercise for each of you holdings and the sectors they are in. You will get a feel for what might be happening based upon data in combination with the fundamentals of the stock. The better you get at reading the tea leaves the less emotional your decisions become. Try it.
Salve Lucrum
December 12, 2009 It’s time to get technical
OK did you miss me? I had a busy week. And to tell the truth, the market is bit weird right now. All I can do right now is give my opinion but I have taken a few steps backwards in the last week or so. Here is what I think is going on and how to best benefit.
Good news is married to bad news in the media. Corporate earnings are improving but seldom with any top line growth so you have to ask, “Is it sustainable?” So I went back to basics.
Make sure your stocks are still healthy. If you got into something more than 3 months ago, just double check the last earnings report. You can find them anywhere but if you want a link, here it be: http://www.sec.gov/edgar/searchedgar/companysearch.html
Then check on the sector using any of the finance websites like Bloomberg, wsj on line, Morningstar, IBD, etc. Don’t fight the sector right now. If it is weak, take some profits and be patient. If its trending up, be patient.
Lastly, if you really have no life, get technical. That’s right, break out the tea leaves and start studying the charts. As a last resort, get comfortable in understanding how the charts of a stock or a sector can help you decide what your next play might be. If you have been reading this blog for any time at all you know I am not a big proponent of charting. But in a sideways or “trading range bound” market, it can help. I know it’s only been sideways for a couple weeks or so.
Knowing that I could not a clear message on most of my stocks I went back to a classic, my dad’s copy of Technical Analysis of Stock Trends, 5th edition. First published in 1948, it is a primer for understanding charting. Then there is a great website called stockcharts.com. There is some great baseline explanations on the site as well as 12,000 free charts. The subscription side is tremendous, but costly and definitely well above my understanding.
There is no reason to bore you with all of the technical indicators, but a couple might be helpful. One is called Bollinger bands. In a nutshell, it is an algorithmic pair of lines that are an indicator that creates a “trading lane” for your equity or indices. Think of it as a shipping channel on a nautical map. If your stock is trading in the lane, you are probably OK. If it goes out of the lane above the upper band, your stock might be heading out to bullish open water, if it is going out of the channel below, it might be heading into the shallows of bear land. Now keep in mind that contrarians think contrarily. If the stock is above the bands, it is overbought and if it is below the band it is oversold. Because we are talking about statistical analysis, both are right.
The other indicator that is helpful is a stochastic oscillator. I have waited my whole life to use those words. Mmmm, a little anticlimactic. Anyway, the specific oscillator to which I refer is the Williams % R. This can be found on almost any stock website with interactive charts. Look for the overlay called Williams % R (most have set up to use 14 data points, my personal recommendation is to move it out to 28 to round the data just a bit). Once you see that overlay, it is an indicator whether the stock or indices is over bought or over sold. Don’t be scared, just play around with the numbers.
Once you do this, you will start to see patterns. It’s kind of like when you were a kids lying in the grass looking at clouds. “Hey, that one looks like a boat or that one looks like an angel or that one looks like. . . “ Well these patterns on these charts will start to give you some idea about what the stock MIGHT do. BUT, remember that some of those clouds that looked like angels turned out to be thunderheads? Some of these trends can be the opposite of what you think.
Any way, let’s take a look at a couple of charts and see what they look like. If you want to follow along, go to: http://stockcharts.com/charts/
You will see a box called enter ticker. Type in SPX, which is the S&P 500 Large Cap Index, and hit enter. Below the chart under attributes you will see a box called Range. Change it to 6 months and hit update. Then under overlays, leave the 50 and 200 simple moving averages and choose Bollinger Bands. (Leave the 2,20 reference as this determines the standard deviation upper and lower control limits. You can change them but there is no need unless you really get into charting.) Click on update. Then go down to indicators and from the drop down box choose Williams % R 14. In the parameters box, change the 14 to 28 and click on update.
Your chart is complete. Now let’s take a quick look at what it might be telling you. Again this is a composite chart of an indicia with 500 stocks in it so we do not care about fundamentals, or news releases, or CEO drug habits. This is pure data. In fact in the original 1948 Edwards-Magee book they said assume the data knows everything there is to know about a company and its stock.
At the top is RSI or relative strength. If its above 50 it is a bullish sign and if it is below 50 it is a bearish sign. Just use it as a pulse on any stock of indicia. SPX is at 55.89 which is slightly bullish. You can see RSI is in the 50-55 since early November. (Sideways).
In the chart itself you will see two green lines. Those are your Bollinger bands. You can see how the stock trades in that band or “Trading Channel”. Right now it is just above the middle of the Bollinger Band midpoint of 1101. The SPX closed Friday at 1106. The blue line is the 50 day moving average, it too appears bullish. The red line is the 200 day moving average, and it to is headed in the right direction. Below the chart you see the MACD and that is a derivative of a moving average. Personally I don’t use it but it does come up on many charting software. The pro analysts like it because it takes into account momentum and trend. I just use to see if its DIRECTION NOT VALUE is up or down indicating bullish or bearish. In this case its going down just a little so that would be considered a slightly bearish trend. There have been hour long conversations about the cross over points on the MACD charts which just bores me to death probably as much as I am boring you to death right now. But I digress.
Now my favorite is the Williams. Remember this is an algorithmic expression indicating whether the stock or indicia is overbought or over sold. Here is where you can have some fun. Go to the July 20 area on the chart. You’ll see the Williams below -20 from 7-20 through 8-17 and the SPX went from 950 to about 1010 and then corrected. Then there is another nice run til Sep 8 and you can see the Willims %. Keep looking at the William and compare it to the SPX price and you start to see a pattern. Now we have a choppy or sideways pattern since Nov 9. We have a narrow trading range in the Bollinger Bands, a flat lined but bullish Williams, and with a little imagination you can see the physical resistance line at 1101. My guess is, next week, early next week we break though 1101 on the down side and it becomes a buy signal for quite a few institutional people. It will come from certain sectors of the S&P. The downward pressure will come from Financials and Energy and upward pressure will come from healthcare and utilities.
So how do you benefit, just go through this exercise for each of you holdings and the sectors they are in. You will get a feel for what might be happening based upon data in combination with the fundamentals of the stock. The better you get at reading the tea leaves the less emotional your decisions become. Try it.
Salve Lucrum
posted by J.J. Phineaus at 11:46 AM
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