Beruflich Dokumente
Kultur Dokumente
Presented by
Martin J. Pring
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Three Points to Take Home.
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Definition of Technical Analysis:
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In technical analysis we are dealing
in probabilities, never certainties.
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The hopes and fears of all market
participants are reflected in one thing
….the price !!
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Technical analysis assumes that prices
move in trends.
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Trends have a tendency to perpetuate.
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Prices in any freely traded market are
determined by the attitude of all market
participants to the underlying fundamentals.
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“A trend is a trend is a trend.”
Always assume
the prevailing trend is in existence.
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There is no known technique for
determining the duration and exact
magnitude of a price move.
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It doesn’t matter what time frame you
are following...
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The only difference is;
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It doesn’t matter what security you are
following...
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Now for Momentum!
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Price
Momentum (Oscillator)
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Momentum is a generic term.
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Rate of
Change
RSI
MACD
Stochastic
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These are all
momentum
indicators
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Momentum indicators share common
characteristics, much like fruit.
FRUIT MOMENTUM
1. Fruit is sweet 1. Divergences apply to all
momentum indicators
2. Fruit is almost
always grown in 2. Overbought/oversold
the warmest lines can be drawn on all
season momentum indicators
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Actual buy and sell signals can only come
from a reversal in the trend of the price . . .
Not
. . . the momentum series.
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. . . doesn’t mean that
prices will also!
Just because
oscillators change
direction . . .
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Momentum’s valuable contribution
is to tell us when the underlying technical
structure is weakening, or strengthening.
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There are two broad momentum categories:
1. Momentum characteristics
Characteristics dealing with overbought,
oversold conditions, divergences etc.
1. Overbought/oversold
2. Divergences
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Momentum Characteristics
1. Overbought/oversold
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The news is so
good, I am
certain to make
money if I buy
now!!
Overbought
Equilibrium
Oversold
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The news is
so bad only
a fool would
buy now !!!
Equilibrium
Oversold
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Additional profit
Overbought
premature
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Better timing
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The Rate of Change
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The rate of change is probably the easiest
momentum indicator to construct.
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The golden rule of technical analysis
should be:
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The rate of change lends itself handsomely
to overbought and oversold interpretations.
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The problem is that there are no hard and
fast rules about where the lines should be
drawn…
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The problem is that there are no hard and
fast rules about where the lines should be
drawn…
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Phelps Dodge
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Phelps Dodge
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Phelps Dodge
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Silver
30-day ROC
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The RSI
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The RSI, or Relative Strength Indicator,
is a momentum indicator
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Benefits of the RSI vs. ROC:
1. It is less volatile.
Oversold at 30
The magnitude of the oscillations of the RSI are
inverse to that of most other momentum series.
Hang Seng
Overbought/oversold are
9-day RSI at 70 and 30 for both series
65-day RSI
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Hang Seng
Overbought/oversold
9-day RSI now at 80/20
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The true meaning of “long” and “short” time
spans.
Proctor and Gamble (daily) Proctor and Gamble (mthly)
OB/OS at OB/OS at
65/35 85/15
Suggested Alternative RSI Time Spans
9 13 9
14 26 12
30 39 18
45 52 24
Benefits of the RSI vs. ROC:
No Overbought
confirmation confirmation
Oversold
RSI 14 confirmation
No confirmation
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Be mindful of the time frame when you see
a signal.
General Motors Daily General Motors Monthly
2-year
45-day decline
decline
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MSCI Emerging Markets (EEM)
RSI (14)
Momentum Characteristics
1. Overbought/oversold
2. Divergences
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In the description of overbought and
oversold conditions,
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. . . but momentum often turns ahead
of the price.
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C
B
A Negative divergence
B
C
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Everything looks good!!
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Price
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Divergences
must be confirmed by the price.
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Confirmation can come from…
1. Trendline breaks
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Weak momentum finally
confirmed by price
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In one respect, markets are like houses,
they take longer to build than tear down.
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Divergences also appear at market bottoms,
where they are called positive divergences,
because momentum hits bottom before the
price.
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A
B
Positive divergence
A
B
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Sugar
Confirmation
10-day ROC
Positive divergence
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Coca-Cola
RSI 14
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Virtually no
upside
momentum
at final peak
Sharp decline
Virtually no
upside
momentum
at final peak
Virtually no downside
momentum at final low
Followed by a sharp rally
Virtually no downside
momentum at final low
Chennai Petroleum
Barely below
10-day ROC zero at final
low.
Japan ETF (EWJ)
ROC (14)
Momentum Characteristics
1. Overbought/oversold
2. Divergences
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Prices in any freely traded market are determined
by the attitude of all market participants to the
underlying fundamentals.
Keycorp
Earnings
Earnings up
Keycorp
Price down
Earnings up
Earnings
Earnings up
Price sideways to down
Ebay
Earnings Up
Ebay Earnings
Calculating a Price Oscillator
S&P Composite
13-week moving average.
S&P momentum
Bullish
advisors
momentum
Bond Sentiment vs Bond Momentum
Govt Bond Prices)
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. . . means that the price
will very likely rally.
Oversold in a
bull market . . .
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. . . probably means
the top of the rally.
Overbought in a
bear market . . .
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Followed by a
trading range
Overbought in
a bull market
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Followed by a trading range
Oversold in a
bear market
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Doesn’t necessarily
result in much of a rally
Oversold in a
bear market
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Goldman Sachs Commodity Index
Bull trend
Bear trend
Extreme overbought is a
Bear trend bull market characteristic
30-day ROC
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Goldman Sachs Commodity Index
Extreme overbought is a
bull market characteristic
30-day ROC
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S&P ETF (SPY)
RSI(14)
Two Broad Ways
of Interpreting Momentum
1. Momentum characteristics
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Techniques
1. Trendlines
2. Price Patterns
3. Moving Averages
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Techniques
1. Trendlines
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Momentum must be
confirmed by price
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Momentum must be
confirmed by price.
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Gold Trust ETF (GLD)
ROC (30)
CDN $ (Weekly)
39-week ROC
China ETF (FXI)
RSI (14)
S&P ETF (SPY)
RSI (14)
S&P Composite
12-month RSI
Techniques
1. Trendlines
2. Price Patterns
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Confirmation
Rectangle
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Head and shoulders
Head and shoulders
H
S S Confirmation
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Coca-Cola H S
S
Confirmed
6 weeks later
H
RSI 14 S
S
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Google
ROC (45)
Procter & Gamble
RSI (14)
Caterpillar
S S
H
14-day RSI
S
H S
Whipsaw
S S
H
Warning: Breakout
is coming from an
overbought level
S S
H
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Comcast Higher highs
Overbought
Lower highs
10-day ROC
Techniques
1. Trendlines
2. Price Patterns
3. Moving Averages
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Smoothing of raw data
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Bad sell signal
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MA of MA
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Canadian Dollar/Yen
45-day ROC
MACD
China ETF (FXI)
Dallas Cowboys
The End
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The Special K
Market Cycle Model
Primary reversal
Ideal place for a sell signal realized some
way from the
Short-term trend actual peak.
2 to 6 weeks
Intermediate trend
6 weeks to 9 months
Primary trend
9 months to 2 years
Short-term trend
Special K
2 to 6 weeks
Now Becomes….
Intermediate trend
6 weeks to 9 months
Primary trend
9 months to 2 years
Price
The top
H
S
S
The bottom
Special K
CRB Composite
Special K
CRB Composite
Special K