Technical analysis by Hwang DBS on 12 oct 2009

The ascending channel pattern on the chart remains intact for the moment. This, in turn, raises the support
points and resistance bars along the way, suggesting that our Malaysian bourse could still plot a series of
higher highs and higher lows going forward.
After a short and shallow intermittent pullback, the bellwether FTSE Bursa Malaysia KLCI (FBM KLCI)
resumed its uptrend with a weekly increase of 27.6-point or 2.3% to settle at 1,233.82 last Friday. Also up
for the week were the FBM 70 Index (+2.0%) and the FBM ACE Index (+0.7%). An added positive was the
notable pick-up in trading activity, as daily average volume and value soared to 717.9m shares and RM1.2b
respectively, heavier than the 584.5m units worth RM844.9m traded the week before.
Even the external backdrop is changing to a bit more optimistic now. Last week, Asian equities mostly
rebounded from their preceding weeks’ losses, paced by China shares listed in Hong Kong (+8.4%), Hong
Kong (+5.5%) and Thailand (+3.1%). In the U.S., major stock barometers were up between 4.0% and 4.5%
through the week. Interestingly, the widely watched Dow Jones Industrial Average is presently standing at
9,865 (its highest close since the rally started in Mar this year), eyeing to surpass 10,000 (the psychological
barrier) soon.
In essence, the bits and pieces of positive data – on economic recovery progress and corporate profit
expectations – held together to stir up buying interest globally. Whether the incoming reports remain
pleasant or turn nasty would be the key in sustaining investors’ appetite for equities ahead. Of interest too is
the future direction of the US$ given its weakness lately, which could distort global money flows between
asset classes and geographical allocations if the greenback depreciates further.
Local news flows, on the other hand, will still be quite slow this week. Just a few items are anticipated to
trickle in. They are: (a) the Sep plantation statistics to be out on Monday (12 Oct); and (b) the Index of
Industrial Production (IPI) for Aug also due on Monday. That’s about all the routine macro stuff in the weekly
schedule, not that their outcomes will matter much anyway, in terms of short-term stock market
implications. On the corporate scene, however, there may be individual share price actions in response to
possible surprises when the likes of Public Bank (likely to be on Thursday, 15 Oct) and Bursa Malaysia (on
Friday, 16 Oct) release their quarterly earnings announcements.
Yet, light news may be good news for share prices back home. This can then pave the way for our domestic
stock market to track its overseas peers, though we may still lag in pace.
As the saying in technical analysis goes “never buck a trend as the trend is your friend”, we are keeping our
stance that the prevailing momentum will push the FBM KLCI – even after surging 47.5% from its mid-Mar
trough – to extend its uptrend inside the rising channel.
After bouncing up from the bottom of the two parallel trend lines last week, the benchmark index will
probably zigzag its way to challenge the resistance target of 1,255 next. On the downside, its immediate
resistance-turned-support level stands at 1,230 at the moment. Should the FBM KLCI break under the
upward sloping trend line in the near term on heavy profit-taking pressures, the second support line is seen
at 1,190.

6 Ways Elliott Wave Helps You Trade Better

The following is adapted from Jeffrey's popular 2-volume Trader's Classroom collection.

Elliott Wave Benefit #1: It identifies the trend.

Elliott wave analysis is based on two types of wave development: impulsive and corrective. Impulse waves are five-wave moves (labeled 1-2-3-4-5) that identify the direction of the larger trend. In other words, a five-wave advance tells you the trend as up and a five-wave decline tells you it's down. As traders, we always want to trade in the direction of the trend. We want the wind at our backs: That is the path of least resistance. For example, the probability of success is much greater if you are long a stock when all major indexes are also rallying.

Benefit #2: Elliott wave analysis identifies countertrend moves within the trend.
Corrective waves are simply a response to the preceding impulse wave; corrections always move against the trend. They typically subdivide into three waves (A-B-C) and give us, the traders, an opportunity to position our trades in the direction of the market's larger trend.

Benefit #3: Elliott wave analysis identifies upcoming changes in trend.
Elliott waves are fractal -- i.e., self-repeating on all degrees of trend. This enables you to identify the maturity of the trend. For example, if prices are advancing in wave 5 of a larger five-wave advance, and wave 5 is close to completed its smaller 5-wave impulse -- as a trader, you know that this is not the time to be adding to long positions. Instead, it's time to think about money management: maybe take some profit or at least raise your protective stop.

Benefit #4: Elliott wave analysis confirms the resumption of the trend.
Corrections typically unfold in three waves (labeled A-B-C). When wave C exceeds the extreme of wave B, thus confirming the pattern as a three-wave structure, it implies that the larger trend has resumed.

Benefit #5: Elliott wave analysis provides high probability price targets.
When R.N. Elliott wrote Nature’s Law, he specifically stated that the Fibonacci sequence was the mathematical basis for the Wave Principle. And as time has proven, he was right. Elliott waves, both impulses and corrections, adhere to specific Fibonacci proportions.

Benefit #6: Elliott wave analysis provides specific points of ruin.
Where are you wrong? This seems to be the eternal question for traders. And once again, Elliott wave analysis provides us with the answer via the Three Rules of Elliott:

Rule #1: Wave 2 can never retrace more than 100% of wave 1.
Rule #2: Wave 4 may never end in the price territory of wave 1.
Rule #3: Out of the three impulse waves 1, 3 and 5, wave 3 can never be the shortest.

Bottom line, wave analysis is not a crystal ball, but it will help you accomplish three crucial goals: Identify the trend, stay with it, and get out when the trend is likely over.

7 Indicators

Technical analysis have become an increasingly popular tool to succeed in trading and investment as more successful traders and investors claimed to have used technical analysis in one way or another. Fundamental analysis may be a very good tool to identify companies with good financial and management background but technical analysis is the perfect tool to identify the right price and the right time to buy and sell by identifying price patterns on the chart that reflect market sentiments or emotions. Therefore, having knowledge in technical analysis gives investors and traders the added advantage
Different indicators are used to identify various price behavior. One who understands price behavior is able to know future price direction. The more you know how to use these indicators, the more you understand about price behavior. But beware, knowing too many without proper application can cause a lot of confusion. Below are some major indicators that are commonly used. In this workshop we will show you how these indicators are used to understand the various price behavior and most importantly, how it is practically applied in a real market.

Elliot Wave and Fibonacci

Learn how markets really move. “Elliott Wave” tells it best.
Discover how Elliott Wave and Fibonacci are an unbeatable combination to help you become a consistent market winner.
Elliott Wave and Fibonacci master Don Schellenberg will reveal:

• How and why Elliott Wave works
• The simplest and most powerful parts of Elliott Wave
• The Fibonacci Ratios you really need to know.

Learn to identify the strongest Resistance and Support in every market, “in advance”. Give yourself the coveted advantage over other market players.

Candlesticks

The Japanese Candlesticks is an age-old tool first used by the Japanese in the 17th century and the usage has grown exponentially in the 20th century with every charting program having this methodology. The Candlesticks are great in identifying price behaviors in the very short time frame, therefore making it a leading indicator. The Candlesticks are commonly used to identify price reversals or continuation patterns.
You will learn how candlesticks can be used to identify good trading opportunities.

Moving Averages

This indicator is used to understand the most important price behavior – the price trend. You will learn how to apply moving averages in different time frames to identify short, medium and long term trends, and to understand the relationship between the different trends. You will also learn how moving averages are used to provide trading signals.

Bollinger Bands

Developed by John Bollinger, the indicator aims to identify price volatility. Price tends to strongly move into a direction when the price volatility contracts. By using the Bollinger Bands, the trader can identify when price volatility contracts and get ready for an explosive move. Apart from learning how to identify and understand price volatility, you will also learn how to practically use the Bollinger Bands to identify trading opportunities.

MACD

The Moving Average Convergence Divergence is a very popular indicator because it is a multi-purpose indicator that identifies price trend, price momentum and price reversals. Therefore, you can understand more price behaviors by using just one indicator. You will learn how to use the MACD and practically apply it to make trading decisions.

Stochastic

The Stochastic is an oscillator that identifies whether price is relatively high or low. This is an important indicator to those traders and investors who likes to buy when price is low and sell when it is high. You will learn how to use this indicator to also identify the right time to trade when price is relatively low or high.

D'ont be Emotional .. go technical

The way most people invest, it’s a fool’s game.

They buy on a hunch or a hot tip. Stocks get hammered, and the average guy sells at the bottom. Google looks like it’s going up forever, so otherwise-prudent people pile in at the very top.

Investing can make the cleverest people -- folks who are experts in their own fields -- look mighty dumb.

Greed and panic

For most investors, emotion trumps intelligence.

We bounce back and forth between greed and panic, depending on how the market is treating us that day.

And when it comes time to make an important decision, we have as much self-control as a couple of seventeen-year-olds on prom night.

You’re human. I’m human, too. But I hold one huge advantage over most investors.

I learned many years ago that I’m an emotional creature. We all are. It’s what makes us smile at little children at play. It’s what makes us want to pet a puppy.

It’s a wonderful attribute that helps make us human. But that same attribute makes us lousy investors if we let it have its way.

That’s why I only trust the Science of Investing using technical analysis.

Descending triangle

Ascending triangle

Symmetrical Triangle

Reverse Head and shoulders

Head and Shoulders

Double top or M top

Double top or M top is a chart pattern formed after an uptrend or a rally.
The profitable action to take is to sell when price breaks below the neck line.
After selling, the objective is to buy back when the price dropped as much as the amount from double top to the neck line.

If you are interested in trading forex click here for help.

Double Bottom or W bottom

A double bottom is one of the most recognizable chart patterns. It typically resembles a "W" and forms after a downtrend. A double bottom forms as part of a consolidation process, in which one group of traders is liquidating a position as another group is accumulating. Typically, the left side of the W is formed as part of a larger downtrend. Once that low is set, the stock bounces higher before coming back to retest the first low. If the retest is successful, the chart begins to look like a "W". Once the "W" is formed, the stock must clear the neckline, which is typically in line with the center peak of the "W". It is important to note that a double bottom is not valid until the price closes above the neckline.

The entry point to buy is at the time price breaks the neck line.

Trading in stocks, options or forex is only profitable if you do it right and get enough help. You may click here for help

New Bull at Bursamalaysia?

The stock market is starting to show the symptoms of a typical bull market. Firstly, investors were not
afraid at all as the KLCI approached the 76.6 pts RSI yesterday, which helped the benchmark index to
stretch its gains within the overbought territory. Another very positive development is that this time, it
was the broader market which fueled buying sentiment on the KLCI component stocks instead,
eventually sending the key index higher by 10.06 pts.
We have said that it is not impossible for the key index to stretch the current uptrend. Although
the market has entered overbought territory, the KLCI could still rally further and carry the daily
RSI over the 80 pt-mark. We have seen this happen many times before in a typical bull market in
the past, especially when the weekly and monthly RSIs are far from being overbought.
Of course, the key technical indicator to watch out today is the daily RSI, which is now trading at the 79
pt-level. No doubt that the market is becoming more and more overbought, but the conviction and
confidence of buyers are also improving by the day since the breakout from the 100-day MAV line. This
type of market sentiment is essential at this stage to carry the KLCI further away from the 200-day MAV
line. Yesterday’s rally is the initial confirmation of a decisive violation of the 200-day MAV line.
Meanwhile, the near-term technical outlook of the KLCI remains firmly bullish. We are still eyeing
a strong support at the 200-day MAV line, which is now situated at the 959 pt-level. An additional
support is seen at the 936 pt-level, followed by the 925 pt-level. To the upside, continue to look for the
1,000 pt-level as the next formidable resistance

Blind men story and market analysts

This is just a story to justify why we need technical analysis to guide us in the information overloaded world of share investment.

It goes like this:-

There is a group of five blind men all having the first encounter with an elephant. The first man touched the elephant trunk and thought that the elephant is like a snake. The second man touched the elephant's tail and thought that the elephant is just a jungle vine. The third man encountered the elephant's leg and thought that the elephant is a tree. The fourth raised his hand and touched the elephant's ear and thought that elephant is a huge fan. The fifth man grabbed the elephant's tusk and thought that the elephant is a huge polished rod. When they sat down together for lunch, they started to relate their encounter with an elephant. On learning that they had all encountered but a single elephant, they were puzzled how each of them could have such a different impression of the same animal just like market analysts disagreeing with each others even all are analysing the same stock at the same point of time.

Because market analysts are very much like the blind men analysing the elephant , they only see the part they are trained to see. As such, every analyst suffers from narrow field of vision and misses the forest after examining his tree. One will look at earnings and, finding rapid earnings growth, forecast that the stock will go up. Second analyst, found that the same stock is over-valued due to the low book value and that same stock will go down. The first analyst placed great emphasis on growth of earning and the second analyst is looking for stocks trading at big discount to book value. Perhaps another pair of analysts comes along. One like a stock that is traded at high dividend yield and recommended a buy while the other saw that this same stock is not retaining enough profit for future expansion so recommend a sell. And yet another analyst comes a long and reject all the opinions on the stock because he was worried of the high gearing of that stock.

From a pure technical analyst point of view looking at fundamental of the stock is a futile exercise as they may be opposing views on the same stock. So he believes that all factors are reflected in the chart of the stock. By looking at the trend, pattern formation and oscillators etc he hopes to see the forest and not just a tree. And from that wide view he plans to catch all the monkey (money) in the forest.

This justifies the use of technical analysis.

However, Warren Buffett is the guru in investment and if you wish to be like him click here.

Have a good day!

What the Bleep is a Fibonacci?

The investing game is chock-full of esoteric lingo and obscure mathematical and technical analysis models. All too often, the unfamiliar terminology and the complexity of the models leave the neophyte investor perplexed.

I recently received an e-mail from an OptionsZone reader that exemplifies just this state of confusion surrounding one frequently mentioned technical analysis tool.

The reader asked the blunt question: "What the bleep is a Fibonacci?"

To answer this question properly, we have to go all the way back to 13th-century Italy. It was then that a brilliant mathematician named Leonardo Pisano, who was nicknamed "Fibonacci," identified a sequence of numbers that possessed an unusual relationship.

Here is the famous Fibonacci number sequence: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc. The relationship between these seemingly unrelated numbers is that each term in the sequence is simply the sum of the two preceding terms. This relationship persists into mathematical infinity.

The unusual characteristic of this numerical sequence is that each number is approximately 1.618 times greater than the preceding number.

So much for the "what" of the Fibonacci, now we need to know how this sequence of numbers and the relationship between them is applied to an analysis of the financial markets.

Fibonacci Trading

Technical analysts use the relationship between every number in the Fibonacci series as the basis for identifying the common ratios used in price retracement studies.

When technical analysts look at price action through the Fibonacci prism, they identify two extreme points (usually a major peak and trough) on a stock chart, and then divide the vertical distance by the key Fibonacci ratios.

And what are those key ratios? They are 23.6%, 38.2%, 50%, 61.8% and 100%. Once these rations are identified, they signify potential areas of support and resistance. The question now is why did the aforementioned ratios become the key ratios?

Well, here is where the Fibonacci ratios become really esoteric. The theory here is that in nature, and in the financial markets, systems will tend to display numerical characteristics that resemble key Fibonacci patterns. Beehives, spiral galaxies, the human anatomy and, yes, the patterns in the equity markets, all display profound and unequivocally non-coincidental Fibonacci patterns.

Applied to the market, this technical tool is used to help identify critical points that cause an asset's price to reverse. It's also used to monitor the direction of a prior trend and how likely it is to continue once the price of the asset has retraced to one of the key ratios.

In the chart below provided by the Investopedia Web site, we can see how a Fibonacci retracement is plotted on a stock chart.

Here we see how a stock's price tends to change direction as it nears key Fibonacci support and resistance levels. The most famous of these ratios is 61.8%, which is also referred to as "the golden ratio" or "the golden mean".

This ratio is determined by dividing one number in the series by the number that follows it. For example: 8/13 = 0.6153, and 55/89 = 0.6179.

Does it Really Work?

Now I know what you might be thinking right now. Does this Fibonacci thing really work? The answer to that question is yes and no.

Yes, using Fibonacci retracement patterns along with other technical analysis tools can work by giving you the edge when it comes to identifying key resistance and support levels in a stock. But no, relying solely on a Fibonacci retracement pattern or any single technical analysis measurement as the Holy Grail of investing does not work.

So, now that you know what the bleep a Fibonacci is, you can now move on to other simple questions such as the origins of life on earth, the Big Bang and quantum mechanics.

Buy signals ... underconstruction

The following are buy signals.

1. Divergence with RSI

2. Divergence with MACD

3. Divergence with Stochastic

4. Crossing of 7-day and 3-day moving average... both 7-day and 3-day MA are heading lower and then buy when 3-day MA cuts above 7-day MA

5. Candle stick signal..
.a) morning star ...






b) Bullish harami









6. RSI <30? look at other oscillators as well.. overbought or oversold?

7. Reward risk ratio .. at least 2 to 1 0r 3 to 1

8. any known information

9. dividend paying ... what is the current yield?

Interpretation of Technical Indicators

Moving Averages: A stock’s short-term trend is bullish if share price stays above the 10-day moving average, and
bearish if it stays below. The medium-term trend is positive if share price stays above the 30-day, and negative if it
remains below this average.

14-day RSI: A reading below 30 is considered oversold, above 70 is overbought. A rise above 50 with a corresponding
share price surge above the 30-day SMA should be taken as a bullish move with good short-term upside potential. A
fall below 50 and a simultaneous dip below the 30-day SMA is bearish and imply further near-term downside risk.

Bollinger Bands: Variable width bands that narrow during less volatile periods and widen during more volatile periods.
As a general rule, in a bearish trend, traders should buy when share price touches the lower band and exit when price
touches the middle band. The reverse is true in a bullish trend, ie. buy when price touches the middle band and sell
when price touches the upper band. Momentum traders will buy on price breaks above the upper band, and sell when
price breaks below the lower band. Alternatively, a sharp move that originates at one band tends to go all the way to
the other band, a useful observation when projecting price targets.

Realtive Strength Index .... RSI

RSI ocillates between 100 and 0 with a centre line 50

Note the following:-

# RSI>70 indicates overbought
# RSI<30 indicates oversold

# Get ready to sell when RSI>70, you only get ready and not sell off the very moment RSI goes above 70 because in a bullish up swing RSI may stay above 70 for quite a while and you sell when price spikes up from there.
# Get ready to buy when RSI<30. similarly you only get ready to buy when RSI goes
below 30 because in a bearish trend RSI may stay below 30 quite a while and you buy when
price spikes down from there.
(here patience is the name of the game, if price spike does not occur just sit it out and wait for other opportunities, when you miss the boat don't worry it will return again)

2. RSI divergence is interpreted the same manner like MACD divergence

3. RSI centerline cross over; when RSI come from below 50 and start to pierce above 50 (certerline) indicates a bullish trend and when RSI come from above 50 and starts to pierce below the 50 (centreline) indicates a bearish trend. This is less reliable compared to the first two above.