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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. CURRENCIES page 4 20 18 18 16 14 14 13 10 Traders.com inanyformwithout writtenpermissionfromthepublisher. Copyright ©2007 TechnicalAnalysis,Inc.Allrights reserved.Informationinthis publication mustnotbestoredor reproduced TABLE OFCONTENTS INDEXES profitably fromaturn-of-the-year advance. breakouts andbreakdowns helpedSwissfranctradersexit One ofthemoststraightforwardwaystoanticipate targets after by DavidPenn When doesmomentumreallymatter? by DavidPenn The N Hill by Arthur This patternsuggestsevenmoreupsidefortheN by DavidPenn March cameinlikealion...withmarketbottomtow. by DavidPenn the foundationsofabeartrap. Monday butquicklysprangbacktolay The Russell2000brokesupporton Hill by Arthur reversal patterns. Here aresomeverycleartradingsignals,includingtwo by GaryGrosschadl So manytochoosefrom...solittletime. by RudyTeseo does notturnintoanexhaustiongap. the latestgapaffirms thisuptrend—provideditholdsand And Successful Test Measured Moves In The Swiss Franc BOSO And The S&P500Breakout Mind The NASDAQ Gap The QQQQ’s Broadening Top The Q’s Double Hourly Bottom A Bear Trap For The Russell2000 The NASDAQComposite Classic Trading SignalsOn Why SoMany Moving Averages? •Traders ™ ispublishedby Technical Analysis,Inc.,4757California Ave.S.W.,Seattle,WA98116-4499. 1206938-0570or 1800832-4642. PrintedintheU.S.A. ASDAQ .com Traders hasbeenmovinghighersincemid-March,and THE MAGAZINE FORINSTITUTIONALANDPROFESSIONAL TRADERS ASDAQ 100. 24 22 22 29 29 28 25 21 CHART PATTERNS the Swissfranclooms. combustion beforeourveryeyes,animportanttestagainst As theUSdollarcontinuesitsslow-motion,spontaneous by DavidPenn reversal? Try theU Looking foralong-termbearmarketthat’s showingsignsof by DavidPenn correction orreversalintheE 2006 highsprovidesanopportunityfor Failure tofollowthroughabovetheDecember by DavidPenn looks asthoughitwillbeheadinghigher. Dollar Indexbrokeresistancelevelsintwotimeframesand With abigsurge overthelasttwoweeks, Australian Hill by Arthur present support. so farreflectslittlemore thantestingformerresistancefor The currentcorrectionin theDowJonesIndustrial Average by DavidPenn Is thereatrendbiasinweeklychartviews? Passamonte by Austin pattern appears. the downsideinS&P500,a2B In anothersignofwaningmomentumto by DavidPenn positive divergences. 500 continuestoforge abottomfromoversold conditionsand In thedaysaftermarketmeltdown,Standard&Poor’s by DavidPenn The USDollar-SwissFranc The S&P500 2B Test OfBottomIn Bear HuntingIn The CanadianCurrency A 2B Top In The Euro? T F Short-Term 2BBottom In Building ABetterBottom An Ascending Triangle For The Aussie esting The Breakout esting The ed Up? JULY/AUGUST 2007•VOLUME5NUMBER4

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. SECTORS TABLE OFCONTENTS 40 39 38 37 36 35 34 33 30 page 6 For pickingtopsandbottoms,alwaysbeton2B. by DavidPenn wedge. over thepastfewweeks,butmovelookslikeabearish The SemiconductorIndexbouncedwiththerestofmarket Hill by Arthur Dow industrials? Are theDowtransportsfailing toconfirmthenewhighsin by DavidPenn $B by ChaitaliMohile continue toramphigherintoMarch. After puttinginaseasonalbottomOctober, cocoafutures by DavidPenn Will sugarfindabottominspringtime? by DavidPenn selloff attheendofFebruary. investors arecautiousaboutinvestingintechstocksafterthe The moneyflowandtheon-balancevolumeindicatethat by PaoloPezzutti part. few technicalreasonswhywaitingshouldn’t bethehardest Inundated withcallstoinvestinbiotechstocks? There area by DavidPenn up, andaway. risky loansfacingseriousproblems,butinCanada,itisstill with housepricesdroppingandmortgagecompaniesthatgave The realestatemarketmaybeintroubletheUnitedStates, by JacobSinger, PhC positive, theresistancemightchangepicture. resistance. Soalthoughtechnicalconditionsoncharts are Canada AndIn The US Tr Bank Index Under Test Cocoa’s Offensive Spring The Sweet Suffering OfSugar T Buy The BiotechHype? The RealEstateMarket In 2Bs The Three A Rising Wedge For The SOX •Traders ech Stocks AndADistribution Phase ansports HesitateAt ansports The Top KX isonmovingaveragesupportbutunderprevious high .com Traders THE MAGAZINE FORINSTITUTIONALANDPROFESSIONAL TRADERS 44 44 43 42 41 50 49 46 45 50 METALS ANDENERGY A Advertisers’ Index Glossary a resistancezone. crude isquicklybecomingshort-termoverboughtandentering Even thoughtherecentsurge inoilshowstremendousstrength, Hill by Arthur crude oil’s attempttomovehigherinearlyMarch. Three months’worthofpriceconsolidationproveabarrierto by DavidPenn Divergences tellthetaleofMarchbounceinJunegold. by DavidPenn suggest goinglowerbeforehigher. Competing thesesongoldnevertheless by DavidPenn in thegreenback. inflation havecompletelyeclipsedthepossibility ofareversal As thedollarmovestowardatestoflong-termlows, fearsof by DavidPenn potential fornewhighsingold? Are thegoldstockssayingsomethingimportantabout by DavidPenn be difficult tocomeby. zone andfurthergainscould has reachedaresistance a nicerally, buttheadvance Crude iscurrentlyenjoying W Hill by Arthur Zone Oil HitsAResistance ChargesIntoResistance Crude J The GoldCorrection Wa The DollarAndDeflation Gold MeetsResistance une Crude RallyRetreatsAtResistance une Crude uthors AndArtist est TexasIntermediate ving The Gold ving The

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. page 8 Subscription orders:1800832-4642or206938-0570. andNovusDiscoveraccepted. MasterCard, Amex, salestax.VISA, Washington stateresidentsadd8.8% foreign surfacemail,add$15peryear. Advantage orWorkingMoney.USA:oneyear$64.99; publications availableatTraders.com:Traders.com $1.00+ .50. 0738-3355/2007 code forusersoftheTransactionalReportingServiceis: separate systemofpaymenthasbeenarranged.Thefee have beengrantedaphotocopylicensebyCCC, http://www.copyright.com. CCC, 222RosewoodDrive,Danvers,MA01923.E-mail: fee of$1.00percopy,plus50¢pageispaiddirectlyto Transactional ReportingService,providedthatthebase registered withtheCopyrightClearanceCenter(CCC) clients, isgrantedbyTechnicalAnalysis,Inc.forusers sonal use,ortheinternalpersonaluseofspecific Professional Traders Professional infringing ontrademarkrights. benefit ofthetrademarkowner,withnointention magazine areusedonlyinaneditorialfashion,andtothe have apositioninthesecuritiesdiscussedherein. ysis Inc.,oneormoreofitsofficers,andauthorsmay securities orcommoditiesdiscussed.TechnicalAnal- without notification.Wearenotofferingtobuyorsell complete. Opinionsexpressedaresubjecttorevision without furtherverification,anddoesnotpurporttobe believed tobereliablebutnotguaranteedbyus using [email protected] Staff membersmaybee-mailedthroughtheInternet Production Coordinator Classified &WebSales National SalesManagerEdwardW.Schramm Controller Accounting Assistant Project Engineer Industrial Engineer Credit Manager Publisher Carmen Hale Subscription Sales Subscription Manager Contributing Editors Webmaster Staff Writers Technical Writer Graphic Designer Art Director Production Manager Managing Editor Editor Editor inChief Martin Pring,AdrienneToghraie Contributing Writers Anthony W.Warren,Ph.D. Traders s Traders.com Subscriptions: Authorization tophotocopyitemsforinternalorper- The namesofproductsandservicespresentedinthis THE MAGAZINE FORINSTITUTIONALANDPROFESSIONAL TRADERS July/August 2007•Volume5,Number4 Subscription &OrderService1800832-4642 JayanthiGopalakrishnan • Traders 1 206938-0570Fax938-1307 1 206938-0570Fax938-1307 OFFICE OFTHEPUBLISHER Jack K.Hutson Mary K.Hutson HanJ.Kim DennisD.Peterson,BruceFaber ADVERTISING SALES Christine Morrison 4757 CaliforniaAve.S.W. Seattle, WA98116-4499 http://www.traders Jack K.Hutson ™ Linda EadesGardner [email protected] DavidPenn SeanM.Moore ElizabethM.S.Flynn CIRCULATION , SharonYamanaka [email protected] [email protected] The Magazine Magazine The TinaRow,JanisThomas, .com Jason K.Hutson WEBSITE DonBright,ThomasBulkowski, EDITORIAL Subscribe tooneoftwoonline KarenE.Wasserman ™, John Ehlers,KevinLund, Agnes DiMaano Sean M.Moore Chris J.Chrisman Karen Moore is preparedfrominformation For thoseorganizationsthat .com for Institutional and Institutional for

USA fundsonly. .com TM Index andwhathappenswhenitbrokeresistancelevelsintwotimeframes. there’s “AnAscendingTriangleForTheAussie”byArthurHill,inwhichweexaminetheAustralianDollar breakdowns andhowtheyhelpedSwissfranctradersexitprofitablyfromaturn-of-the-yearadvance.Then Moves InTheSwissFranc”byDavidPenn,welookatwaystoanticipatetargetsafterbreakoutsand we haveseenthathappenwithothercommoditiessuchascrudeoil. would bethetechnologysectorin2000.Wesawasimilarscenariowithgoldearlypartof2006,and could bechargingtowardaresistanceleveljustaswehaveseenwithindexesinthepast.Aprimeexample levels itisalwaysagoodideatoexpecttheworst.Values Asia asaprimeareaofinvestment.However,atsuchlofty mentals arestillstrong,Iwouldn’tbeaversetoconsidering means atighteningininterestrates.Giventhatthefunda- is thatinflationcouldbecomeaproblem,whichinturn currencies, andfavorablemonetarypolicy.Thedownside remarkable growthwithstrongcorporateearnings, getting wearyofanoverheatedmarket?Asiaisenjoying With globalmarketsgoingup,andaway,shouldwebe Take alookatourwebsiteandseewhatwehavetooffer.Checkusout—thatwillenableyouto: not theonlyregiontoinvestin,afterall—it’sbeginning. happening ingold,what’supcrudeoil—there’ssomuchtolookatandstudy.Asia’s TRADING NOW And M A In thisissueofTraders.com,wetakealookatmanythingsgoingonaroundtheworld.“Measured • • • • • Check outourOnlineStore,whereyoucandownloadP Visit Traders’Resource,ourreferencetoallthingstechnicalanalysis Visit ourSubscribers’Area,whereyou’llfindcomputercodethathasbeenreferencedinS&C Examine ourTraders’Glossary,growingbyleapsandbounds and mosteverythingelseyoucanimaginewithothertraders. Visit ourMessage-Boards,whereyoucanshareyouropinionsoftradingtechnicalanalysis, articles; andfinally, all thewaytopresent,foranominalcharge US, thebiotechhypeandwhetherwecanbelieveit,howcocoasugararedoing,what’s nd there’smoretoconsiderinthisissue:WelookattherealestatemarketCanadaand shown incrediblystrongperformanceoflate. arkets inJapan,SouthKorea,andChinahaveall http://www.traders.com/S&C/SiteSearch.html http://Search.Traders.com http://Message-Boards.Traders.com http://Store.Traders.com http://Technical.Traders.com http://Working-Money.com http://www.Traders.com Traders.com Advantage that isonlyafractionoftheusefularticlesyou’llfindhereandatouronlinepublications, ...... Editor Jayanthi Gopalakrishnan, ...... and ...... Working Money ...... , orevenS Browse orsearch ourwebsites Ask andanswerquestions Trading productinformation Search ourwebsites Order productsandarticles Direct toWorkingMoney Home –everythingstartshere DF s ofpastS&Carticles,from1982 TOCKS & C OMMODITIES July/August 2007 magazine.

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help So many to choose from...so little time. little from...so choose to many So by RudyTeseo equally andis simplyanaverageofprices fora average convergence/divergence(M other indicators.Forexample,thefamousmoving tors usedintechnicalanalysisandformthebasisof days, movingaveragesarethemostcommonindica- more, pleaseemailmethedetails,thankyou.)These moving averagesintheliterature.(Ifyouknowof found referencestonolessthanseventypesof years, inmystudiesoftechnicalanalysis,Ihave primitive now,butitwaseffectivethen.Throughthe my stockongraphpaper.Thismaysoundstone-age I usedtomanuallyplotasimplemovingaverageof types ofMAsare: the weightappliedtomorerecentdata.Theseven accuracy. to producesignalswithfewerlagsandsomore past performance.Sotechniquesweredeveloped ever, thesesignalstendtolagastheyarebasedupon useful foridentifyingentryandexitpoints.How- with price,ortwomovingaveragestogether,are of thepriceasecurity.Movingaveragestogether provide aclearerpictureofthetrendsandreversals supposed todo.Movingaveragessmoothdataand improve theMAsoitcandoabetterjobofwhatit’s technicians andprogrammershaveattemptedto different strokesforfolks.Overtheyears, about MAstheanswerbecamesimpleenough: ages. Whyaretheresomany?AsIlearnedmore intrigued withthedifferenttypesofmovingaver- When Istartedstudyingtechnicalanalysis,was T bination ofseveralMAs.

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. where SCisexpressedasapercentage. smoothing constant: indicators, thefollowingformulawillprovide parameter youcanchangeistheperiod. most programsthepercentageisfixedandonly program thatgivesyoutheflexibilitytodoit),butin These percentagescanbechanged(ifyouowna a percentageoftoday’sclosetoyesterday’saverage. it wouldbeincalculatingtheS weighted at9.5%ofthetotalinstead5%that quite alagwithanS 7.5% E indicator isfittingitselftothedata. have asmuchdelayinfollowingpricechangesthe statistical trendofastock’sprice.ThisMAdoesnot to thetimeseriesforecast.Thisindicatordisplays period, usethefollowingformula: percentage. Ifyouneedtoconvertpercentage mula willconvertanyperiodyouwanttouseinto gram requirestheinputinpercentages,thisfor- July/August 2007 MA yousell.The selectionoftheperiodsis yourcall, buy, andwhenthefastMA crosses belowtheslow When thefastMAcrossesabove theslowMAyou two MAsareusedtoidentify buyandsellsignals. the MAismovingaverage crossover,wherein data tomakeadecision.One ofthepopularuses mentation andbacktestingbeforeyougatherenough where thereareoptions,youhavetoresortexperi- Not initself.Likemostthingstechnicalanalysis, help thetechnicianchoosebesttypeofaverage? This informationisallveryinteresting,butdoesit W greater weight. tions. Thedayswiththehighervolumeget incorporates avolumeweightingintothecalcula- oscillator, theE ing marketstherearemanywhipsawswithanS better inbothtradingandtrendingmarkets.Intrad- matic adjustmentallowstheaveragetoperform more weightgiventothecurrentdata.Thisauto- complex thantheW history. Calculationsforthisaverageareevenmore default valuesinalmostallchartingprograms. and 26-dayMA,respectively,whicharetoday’s Gerald Appel’soriginalM but fewerwiththeV centage) ofanE plished byadjustingthesmoothingconstant(per- more weightisgiventorecentdata.Thisaccom- according tothevolatility:asvolatilityincreases, actually anS weight tothemiddledata.Thismovingaverageis The useofthisformulacanbeseenintheM Thus, fora20-dayE If yourprogramallowsyoutobuildcustom Variable movingaverage: Time seriesmovingaverage: Triangle movingaverage: Volume-adjusted movingaverage: HICH MA

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. have thebest. like. Trydifferentpairsuntilyou’resatisfiedyou that itwillproducethetradingsignalsyouwould time frameandtestituntilyouhavedetermined a pairfromthetablethatfitsyourimmediate FIGURE 1:MOVINGAVERAGEPERIODS. page 12¥Traders hr-nemdae22to50 Long Intermediate Short-Intermediate Short Very short Periods MOVING AVERAGES .com For moreinformation, visittheS&Cadindexat 101 to200 51 to100 11 to21 2 to10 Days Now select FIGURE 2:BOEINGCHARTSHOWINGTHREEDIFFERENTTYPEMOVINGAVERAGES Traders.com/reader Mulloy, PatrickG.[1994].“SmoothingDataWith W S and February1994issuesof Mulloy anddiscussedinhisarticlestheJanuary Pring, MartinJ.[1985].TechnicalAnalysisExplained , much betterresultsandlesslag. before theW the variousMAs.AnuptrendcrossesE picture ofthedifferentcrossoverspriceand popular MAssetto100days.Yougetanimmediate see thedailychartofBoeingwiththreemost same timeperiodasshowninFigure2.In2, suppose wetrytwoorthreedifferentMAswiththe moving averagewithdifferenttimeperiods.But you. tion, sodon’tchangeanythingthat’sworkingfor articles byrecognizedauthors.Itismerelyasugges- averaging manyrecommendationsfromtextsand table youseeinFigure1isoneIhavecompiledby based uponthetimeframeyouwishtotrade.The Appel, Gerald[1985]. S This articlewasoriginallypublishedon3/28/2007. E _____ [1994].“SmoothingDataWithLessLag,” D averages; thedoubleE switch positions. with thestockselected,andthataveragesmay aware thatthespacingbetweenaverageschanges sooner, andgetoutafewdays(dollars)sooner.Be tion mightallowyoutogetinafewdays(ordollars) TOCKS MA UGGESTED EMA The typicalMAcrossoverusesonetypeof Finally, I’dliketomentiontwomoremoving MA price ofasecurity. the trendsandreversalsof and provideaclearerpictureof Moving averagessmoothdata S McGraw-Hill BookCo. Faster MovingAverages,” Systems. Advanced Version,ScientificInvestment Convergence-Divergence TradingMethod, C Technical AnalysisofS TOCKS OMMODITIES

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. July/August 2007 This bounceoffthe200-dayE ers assignificantareasofsupportorresistance. This bigmovingaverageisoftentargetedbytrad- some traderspreferthesimplemovingaverage). exponential movingaverage(E simply stayedwiththetradeuntil50-day In thiscase,hadthetraderactedonsignaland signal thatstillcapturesagoodpartofthemove. earliest ortimeliestsignal,butitoftenisasafer ing average,abuysignaloccurs.Itmaynotbethe moving averagecrossesoverthe200-periodmov- Traders oftencommentthatwhenthe50-period a commonmovingaveragecrossover(Figure1). make yourheadspin. mathematical formulationsorchartpatternsthatcan are noconvolutedtradingtheoriesherethatrequire have togowiththebigandobvioussignals.There the finalpatternhereisathree-daycalled mation thenextday.Justtodrivethatpointhome, This isabullishbottomreversalsignalwithconfir- other tellingcandlestick—aninvertedhammer. including two reversal patterns. reversal two including riod exponentialmovingaverage(E the mostimportantmovingaverage,200-pe- financial press,please. good chartandagreatcupofcoffeeholdthe nical tradersoftenhave:chartsdon’tlie.Givemea from hereorabroad.That’sthebigadvantagetech- listening tothemyriadofmarketpunditopinions avoided withouthavingreadanymarketnewsor The painofthelargegapdowncouldhavebeen comes onthenexttradingdaywithalowerclose. potential toppingpattern.Confirmationofthedoji close totheexitsignhadtwodaysheed reversal signal.Inthisexample,tradersdancing high afteragooduplegcanoftenbeanexceptional very topofthemove.Adojicandlestickhittinganew was captured. C signals, trading clear very some are Here by GaryGrosschadl Composite NASDAQ On The Signals Classic Trading REVERSAL exceptional reversalsignal. after agooduplegcan oftenbean A dojicandlestickhitting anewhigh Let’s startwiththefirsttradingsignalbywayof The nexttradingsignalcamewithabounceoff The nextsignalwasatimelyone,asitcaughtthe Tradable: have tobedifficultorcomplex;youjust reminds usthatattimestradingdoesnot harts likethisdailyoneoftheN I NDEXS I NDEXS I NDEXS $COMPQ MA MA

came withan- MA ), anicegain ) (although ASDAQ moving averageconvergence/divergence(M tive divergencestotheindexclimbinghighervia black realbody. candlestick thatcloseswellintothefirstsession’s forming thestar.Thethirdcandleisawhitebullish by asmall-bodiedcandlestickthatgapslower, pattern madeupofalongblackrealbodyfollowed morning starpattern 50-day E stochastic oscillatorisvery oversold atunder20. kicking upfromaveryoversold levelof30whilethe head resistance. Failuretherecouldputthis index forward isthatthiscouldbe abearrallytoover- and therelativestrengthindex(R Several indicatorsareexamined.Notethenega- Going forward,theinitial trading targetisthe FIGURE 1:NASDAQCOMPOSITE,DAILY. MA

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STOCKCHARTS.COM Copyrights 2007 © Technical Analysis, Inc. All rights reserved. bear trap. bear back to lay the foundations of a of foundations the lay to back on Monday but quickly sprang quickly but Monday on STOCHASTICOSCILLATOR close. See were lookingprettybleakafterthis support at770onMondayandthings weeks. Theindexbrokebelowkey with asharpdeclineoverthelasttwo level, butthesegainswerewipedout ther reinforced770asavalidsupport February. Thissharpadvancefur- tance at800withabigsurgein the indexbrokeconsolidationresis- lows, alargeconsolidationformedand and earlyJanuary2007.Withthese T support broke 2000 Russell The by ArthurHill The Russell2000 A Bear Trap For just above42.TheN February infreefall,plummeting to N Advantage article,“TheQ set (seemyMarch2,2007,Traders.com through onthehigherhighithadjust in lateFebruaryandfailedtofollow like abearandgoesoutbull. rate tosuggestthatMarchcomesin are concerned,itmightbemoreaccu- March scuttling alongsupportatthe ing stockthenspentthefirst halfof Top”). TheQ market bottom in tow. in bottom market ‘ a with ... lion a like in came March by DavidPenn T And Successful Double Bottom The Q’s Hourly REVERSAL March. ButasfarQ page 14¥Traders ASDAQ ‘In est The Q Tradable: Tradable: lows in lows support at770withreaction he Russell2000established QQQ

100 index,peakednear45.50 Figure 1. , thetrackingstockfor QQQ $RUT QQQQ about themonthof lamb,” goestheoldsaw like alionandout late November2006

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investors ’s 2B with atimefilter,ofcourse. for signsofabreakdown— will continuetowatchthisarea reinforces supportat770andI over, thiswhipsawonceagain makes thisabeartrap.More- recover showsresilienceand but theabilitytoimmediately deed closebelowsupportat770, entry point.Theindexdidin- days laterandthiswillaffectthe is thatthesignalwillcomeafew saws. Thedownside,ofcourse, help reducebeartrapsorwhip- filter isthreedaysandthiscan simple overshoot.Atypicaltime cess volatility,alittlenoise,or have beencausedbysomeex- only onedayold,andthiscould The supportbreakat770was moves fromtherealMcCoy. ply filterstodistinguishfalse March. lators thatmomentumtothe downside waswaninginearly gence intheMACDhistogram helped warntradersandspecu- FIGURE 1:NASDAQ100TRUST(QQQQ), HOURLY. This showsanindexthatisboth 20 lastweekandremainsbelow20. stochastic oscillatordippedbelow uptrend isnotfinishedjustyet.The alive andthismeanstheoverall The beartrapkeepssupportat770 a doublebottomintheQ as 43.25beforefallingbacktoward42. 42Ð42.50 level,oncebouncingashigh (M erage convergence/divergence positive divergenceinthemovingav- graphed asasignificantlowbythe subsequent oneandwasitselftele- The initialtroughwaslowerthanthe the secondtroughlowonMarch14. the initialtroughlowonMarch5and Technical analystsoftenap- What nowfortheRussell2000? The peakbetweentroughswasjust This bouncingmanagedtoproduce ACD ) histogram(seeFigure1). QQQ

between November 2006andinearlyJanuary2007. FIGURE 1:RUT,DAILY. back appearstohavefoundsupport pulled back.Butinterestingly,thepull- ure 2).Shortlythereafter,themarket minimum upsidetargetof44.25(Fig- for anoversoldbounce. and breakabove20beforecalling for thestochasticoscillatortoturnup oversold andstillweak.Iwouldwait Q side movetothe44.25level. bottom wouldcreateaminimumup- successful breakoutfromthedouble was subtractedfromit,meantthata point ofthetwotroughs(roughly42.25) north of43.25,which,whenthelow the Q A positivediver- QQQ This movewaspreciselywhatthe QQQ See www.Traders.comformore. This articlewasfirstpublishedon3/8/2007.

did. BreakingoutonMarch20,

one daylaterreachedthe The Russell2000establishedsupportat770withreactionlowsinlate before. support atapproximatelythesame levelofthebreakoutweeks upside targetbeforepullingback. NotehowtheQQQQfound out fromitsdoublebottomand managedtoreachitsminimum FIGURE 2:NASDAQ100TRUST(QQQQ), HOURLY. ■ the Q near the43.25level,preciselywhere the Q breakout levelthatfurtherconfirms much. successful test,seemstoindicateas ish actiononTuesday,followingthe from thatlevel.Theparticularlybull- the M is evenamodestpositivedivergencein QQQ ACD QQQ

■ See www.Traders.comformore. This articlewasfirstpublishedon4/5/2007. originallybrokeout.There

’s abilitytoboundhigher histogram ontherestof The QQQQbroke July/August 2007

PROPHET FINANCIAL TC2000.COM; TELECHART 2007 Copyrights 2007 © Technical Analysis, Inc. All rights reserved. July/August 2007 at 2PMEST.) (Regular sessionson Tuesdays and Thursdays online tradingworkshop. E-Mini's Provide aGreat Trading Market ▼ yourmarket signalsduring bell-to-belltrading classes. bysystem andinforms youcallingoutthe ofopportunities TIMES Become asuccessfultrader in90days the by learning TraderExpert Live MentoringBelltowithan powerful method thatgives you thebestchancetosucceed. probability trading signalseachday usingasimplebut The A trading method–andallatacomfortable pace. tomarket psychologyandtheTIMES charts ogy andprice trading coursethatcovers everything fromtrading terminol- Every TI studentisgiven aneasytofollow comprehensive TI's Comprehensive Trading Course getting intooroutofatrade quick, easy, andinexpensive. Afast andliquidmarket makes eachday. opportunities trading providing conditionsfor term theright many short This market offers the trader highaverage volatility Tr System) TIMES ward Winning ading CoursehasF Attend aFREE(Noobligation) live TIMES ehd Your mentor botheducatesyoumethod. inthe (Traders Market Expert International

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. tion hasrunitscourse. pattern developedwillcontinueoncetheconsolida- whatever trendwasineffectwhentheconsolidation top isalsoa“continuation”pattern.Thismeansthat ever, likethesymmetricaltriangle,broadening their patternofhigherhighsandlowerlows.How- bit morerare,andoftenconfusechartistsatfirstwith site, thesymmetricaltriangle,broadeningtopsarea November 2006(Figure1).Comparedtotheiroppo- the NASDAQ 100. NASDAQ the BROADENINGFORMATION W for upside more even suggests pattern This by DavidPenn Broadening Top The QQQQ’s that hasdefinedthemovementinQ upward.” and lowerlowsthatwidenovertime.Breakoutis formation. Megaphoneappearancewithhigherhighs clinically: “Pricetrendisupwardleadingtothe page 16¥Traders How doyoutradebroadeningtops?Bulkowski This isaperfectdescriptionofthebroadeningtop Tradable: OPTION CREDITSPREADS 1.800.972.3343 Call todayforfreeinformation: them andCOLLECTpremium? Why buyoptionswhenyoucansell Who doyouthinkmakesthatmoney? SELL S&P500 Collection ofpremiumdoes notmeanretentionofpremium. T SELL S&P500 Don’t buyoptions...Selloptions$50,000 minimumtostart Chart Patterns,ThomasBulkowskinotes ond editionofhisbook riting aboutbroadeningtopsinthesec- rading futuresandoptions involvesrisk. Trade withriskcapitalonly. QQQQ LOSE MONEY... BUY OPTIONS MOST PEOPLEWHO .com Marketswithlittleconcernfordirection Optionsexpiringworthless how youcanpotentiallybenefitfrom: With ourpremiumprogramlearn The optionsellers,ofcourse. Flat markets For moreinformation, visittheS&Cadindexat Encyclopedia Of QQQ

since late corresponded withthelowsofOctober-Novem- daily chart,therewassupportatthe42level,which the caseofQ the stockhasactuallymade“itsturnatlow.”In trick withthisrecommendationisfiguringoutwhen a stop-lossorder0.15belowtheminorlow.”The buy afterthestockmakesitsturnatlow...place recommends that“onceabroadeningtopappears, moving average(E seemed tofindsupportonthe50-weekexponential marked “thelow”wasthefactthatmarket chart —onebigcluethatthedeclineinlateFebruary to earlyMarch,whenthepatternwascomplete. course ofmorethanthreemonthsfromlateNovember ening formationintheQQQQdevelopedover FIGURE 1:POWERSHARESQQQTRUST,WEEKLY. PERIOD! Traders.com/reader QQQ MA

— especiallyintheweekly ) (Figures2and3).Onthe TRADER'S EDGE The broad-

PROPHET FINANCIAL the Q was completed. inability tomovelowerasthebroadeningformation ber consolidationthatcontributedtotheQ where someresistanceshouldbeexpected. the QQQQmovestowardtopofatrendchannel, rally fromthelowpointofbroadeningformationin FIGURE 2:POWERSHARESQQQTRUST,TWO-HOUR. week exponential. most ofthethree movingaveragesshown: the50- broadening topformation—find supportatthelower- rection intheQQQQ—and thelowpointof FIGURE 3:POWERSHARESQQQTRUST, WEEKLY.Thecor- Bulkowski, Thomas[2000]. S for aminimumupsidetargetof50theQ the pattern,whichisapproximately46.Thisprovides approximately fourpointstothevalueattopof formation. Inthiscase,thatwouldmeanadding and addthatamounttothevalueattopof forward: measuretheformationatitswidestpoint for broadeningtopswithupsidebreakoutsisstraight- upside destination. that the50targetmightindeedbea“minimum” approximately 46—suggestsanupsideof52.5,and low isapproximately42versusaformationhighof Approaching thepatterninthisway—formation broadening formationtoprovideanupsidetarget. broadening formationcanbeaddedtothelowof the summer2006lowsnear35.5tohighof sort ofmeasuredmoveupinwhichthedistancefrom UGGESTED What sortofupsidecantradersandspeculatorsin The broadeningtoppatterncanalsobeseenasa Patterns, JohnWiley&Sons. QQQ

look forwardto?Themeasurementrule

READING

■ See www.Traders.comformore. This articlewasfirstpublishedon4/26/2007. Encyclopedia OfChart July/August 2007 QQQ QQQ . The ’s

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. bought. TheN broken andtheindexisbecomingover- show someseriousstrength. ruary highs,andabreakoutherewould resistance zonefromtheJanuaryÐFeb- above 2500putstheindexbackin gap thisweek.Themostrecentsurge March 21,agapinearlyApril,and rally featuresaresistancebreakouton over thepastsixweeks.Therecovery support andrecoveredallofitslosses early March,buttheindexsoonfound (Figure 1).Themoveextendedinto a gapandlongblackcandlestick into an exhaustion gap. exhaustion an into provided it holds and does not turn not does and holds it provided latest gap affirms this uptrend — uptrend this affirms gap latest matter? the and mid-March, since higher GAPS T really momentum does When by DavidPenn S&P 500Breakout BOSO And The BREAKOUTS T moving been has NASDAQ The by ArthurHill NASDAQ Gap Mind The oscillator movedabove80andremains overbought evidence,thestochastic silience, butitain’tbrokenyet.For February. Thethirdattemptshowsre- around 2500inmid-Januaryandlate waning. By further evenasthatmomentum is where itiscapableofcarryingprices where momentumreachesalevel By tion areable to takecontrolofthe weak thatforcesintheopposite direc- prices inagivendirectionbecomes so that pointwhenmomentum carrying page 18¥Traders However, resistancehasyettobe Tradable: Tradable: threshold sharply inFebruary2007with able. TheN he recoveryisquiteremark- tum: thresholdandreversal. cepts whenitcomestomomen- here aretwoimportantcon- , I’mreferringtothatpoint reversal $SPX ASDAQ $COMPQ .com ASDAQ , I’mreferringto

was turnedback

declined a supporttestaround2350. B direction. its, andtakeapositionintheopposite position, spotareversal,takefullprof- take partialprofitsand/oraddtothe has reachedamomentumthreshold, a position,recognizewhenthatmarket spot areversalingivenmarket,take market foragiventime. N would spelltroubleforthe resistance zone(Figure2).This week uptrendandreinforcethe at 2450wouldreversethesix- March trendlineandkeysupport tive. Furtherweaknessbelowthe gap, whichwouldbequitenega- gap andmakeitanexhaustion A closebelow2490wouldfillthe trendline, andtheApril11thlow. the April16thgap,March ing threeitemsforatrendchange: recent gapisholding.Iamwatch- trend remainsupandthemost bought conditions,thesix-week able. strength, butitishardlysustain- year. Thiskindofpaceshows up 52%ifthisratekeptfora six weeks.TheN the indexisupover6%inlessthan show someweakness.Andfinally, look foramovebackbelow80to both overboughtandstillbullish; at loftylevels.Thisindicatoris such asonlybuying orsellingabove selling oversoldones? by buyingoverboughtmarkets and ten remainoversoldforaperiod. that marketsbecomeoversoldof- remain overboughtforaperiod,and markets thatbecomeoverboughtoften tum threshold.Everyoneknowsthat market haslikelyreachedamomen- excellent jobofindicatingwhena October 5,2005)isthatitdoesan Money.com article,“B OSO ASDAQ One ofthethingsIlikeabout A perfecttraderwouldbeableto Despite resistanceandover- There arecaveatstothisapproach, So whynotprofitfromthistendency See www.Traders.comformore. This articlewasfirstpublishedon4/19/2007.

approach (seemyWorking- , andIwouldthenexpect ASDAQ

would be OSO ■ ,” from some seriousstrength. resistance zonefromtheJanuaryÐFebruaryhighs,andabreakoutherewouldshow FIGURE 1:NASDAQ. would reversethesix-weekuptrendandreinforceresistancezone. FIGURE 2:NASDAQ. was clearina number ofindicators,including thestochastic. FIGURE 1:S&P500,DAILY. Further weaknessbelowtheMarchtrendlineandkeysupportat2450 The mostrecentsurgeabove2500putstheindexbackin The positivedivergenceinthe MarchlowsoftheS&P500 July/August 2007

PROPHET FINANCIAL TELECHART 2007 Copyrights 2007 © Technical Analysis, Inc. All rights reserved. momentum thresholdtotheupside. dicating thatithaspassedthrougha in overboughtterritory(Figure2),in- it. Duringthattime,themarketcloses round numberandcannotcloseabove begins torunintoresistanceatthat little problem.However,themarket Figure 1. has thetraderlongaround1390.See 1450, whilethebuysignalfrom2B of that2Bbottomprojectstoabout 2007). Thedoublebottomthatisapart Bottom InTheS&P500,”March16, dard &Poor’s500(“Short-Term2B consider asimilarexampleintheStan- Successful Test,”April5,2007).But July/August 2007 stock marketwasintheQ ment toacompletetradingstrategy. approach canbeanexcellentcomple- gence/oscillator-based —theB tern-based, cycles-based,ordiver- whether thatstrategyormethodispat- that aimstospottopsandbottoms— combined withastrategyormethod average (20to50period).Butwhen below theintermediate-termmoving before movingbackthroughthethresholdenroutetohigherprices. the stockmarketpulledbacktosupport,slippingbelowthresholdtemporarily, a momentumthreshold,becomingoverbought.Alsohighlightedistheareawhere FIGURE 2:S&P500,DAILY. Q QQQ The S&P500ralliesupto1440with The lastbottomIwroteaboutthe ’s HourlyDoubleBottomAnd The highlightedovalindicateswheretheS&P500passed QQQ

(“The OSO double bottomwasreached. threshold, the1450targetfrom after passingbackintothemomentum new highsfortheadvance.Sevendays two dayslater,leadingthemarketto S&P wasbackintheoverboughtzone day, itdidnotclosebelow1413.The traded lowerthanthatonthefollowing session was1413.Whilethemarket zone onMarch29.Thelowofthat S&P 500slippedoutoftheoverbought that sessionagain.Inthisexample,the zone, itdidnotclosebelowthelowof closed backoutsideoftheoverbought downside. was nofurtherfollow-throughtothe rarily outofoverboughtterritory,there Two, whenthemarketslippedtempo- term movingaverages(the50-period). never closedbelowtheintermediate- side ofthismarket.One,thepullback happened forthetraderonlong after. Butanumberofimportantthings In otherwords,whenthemarket The marketpulledbackshortlythere- See www.Traders.comformore. This articlewasfirstpublishedon4/20/2007. ■ known astheBTX andtheSTX. Ultimate Trend Ocean Plus+containstwonewindicators, bounded indicatorsofunusualpower. of non-arbitrariness tocreateunboundedand Delta fame,whoemployed asymtoticprinciples then clickonthe Fo The algorithmsofOceanareby JimSloman bounded indicators.Theyareawesome.” Dow andNASDAQsinceIreceivedthenew “I haveutilizedOceanfordaytradingS&P, the brillianceofyourtechnicalanalysis.” bond market.Iamsoextremelygratefulfor “I’m doingabsolutelyfabulous,tradingthe made aworldofdifferenceinmytrading.” “I can’tthankyouenough,OceanTheoryhas I findittobeintuitive,easyuse,powerful." ny abilityis,tosaytheleast,quiteimpressive. "I findtheSTXtobequiteamazing.Its uncan- natural orderisfarmoreevident." information initisprofound.Thepowerofthe cisely identify...Thisisreallydoingit!...The that Iknewwastherebutcouldnotquitepre- "BTX 2-Lineisbrilliant!Itgetsmeinformation and approachtothemarketsimmensely.” into OceanTheory...Ithashelpedmytrading "I reallyappreciateallthehardworkyouput a a T T r info, please visit n n h h For moreinformation, visittheS&Cadindexat t t d d o e o e t Institutional inquiries welcome. r r u t u e e h h a s s e e a e e n r r O n and e e O Ocean —J —D.B. NewYork —C.E., LosAngeles –J.S., —C.D., California —F.P., Virginia e e m c c mayyoubehappy.com .T., Texas m w w The UltimateStop,also e e a O a Virginia a a button attheleft. O n n n n c c y y T e e T r Traders.com/reader r a a h h e e n n Traders e e a a P P o o s s l l r r o o u u .com y y n n s s and The + + s s ¥ page19 of

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. from a turn-of-the-year advance. turn-of-the-year a from Swiss franc traders exit profitably exit traders franc Swiss breakouts and breakdowns helped breakdowns and breakouts (both downwardandupward)often rules sovaluable.Measuredmoves makes bothmeasuredmovesandswing ting suchpatterns,thisistrulywhat going.” Nexttothesimplicityofspot- cause itvividlytellshowfar...priceis called, isanexcitingformationbe- swing measurementasitissometimes Patterns: “Themeasuredmove...or of hisbook, measured movesinthesecondedition future priceaction. action canbedirectlysuggestiveof reflect acommonconviction:pastprice the market,bothchartisttechniques employed atpotentialturningpointsin while the“swingrule”isgenerally tion patternswhentheyoccurintrends measured movestendtobecontinua- niques intechnicalanalysis.Although perhaps twoofthefundamentaltech- wa M straightforward most the of One by DavidPenn Franc Swiss In The Measured Moves CURRENCYTRADING page 20¥Traders 3 4 As ThomasBulkowskiwritesof Tradable:  0REBUILT2ULES„ RILLIONSOF3YSTEMS„ ys to anticipate targets after targets anticipate to ys 7 #O 0O 0549/52#/-054%2 &ULL &EATURED#HARTS„ %XTENSIVE!NALYSIS„ ALK &ORWARD%VALUATION„ 42!4! NTINUOUS3EARCH„ RTF For moreinformation, visittheS&Cadindexat calls the“swingrule”are nique thatStanWeinstein easured movesandatech- OLIO-ANAGEMENT„ Encyclopedia OfChart USD/CHF 4/7/2+ .com 777342!4!3%!2#(#/- 3 342!4%'9$)3#/6%29 1). TheU of themeasuredmoveatwork(Figure currency pair)isanexcellentexample more accurately,thedollar/Swissfranc decline. tion fortheresumptionofrallyor down) toprojectaminimumprojec- case ofapotentialmeasuredmove measured moveup)orthetop(in the bottom(incaseofapotential dation. Thisvaluecanthenbeaddedto measured movedown)ofthatconsoli- the bottom(incaseofapotential of apotentialmeasuredmoveup)or low orthehigh)totop(incase from thebeginningofmove(the measured movepatternisthedistance test theprevioushighorlow. but shouldnotriseorfallsomuchasto retrace afractionofthepreviousmove), mildly directional(risingorfallingto minds us,willbeeitherhorizontalor This consolidation,asBulkowskire- move thendevelopsaconsolidation. any correctionsalongtheway.The price actionisoftenswift,withfewif begin withnewhighsorlows,andthe otherwise, beyondtheupperbound- day ofanypriceaction,intradayor minimum upsideprojectionof1.2505. dation thatis,1.2113),thenwegeta the valueatbottomofconsoli- move of392points.Ifweaddto mately 1.2272.Thiscreatedaninitial of thisconsolidationwasatapproxi- a consolidation.Theupperboundary the month)wasmostlyanupswingin much ofthatrally(thesecondhalf rallied intotheendofmonth,but December 2006near1.1880.Thepair The caseoftheSwissfranc(or, The keymeasurementtotakeinthe Starting onJanuary3—thefirst ANDFUNDAMENTALANALYSIS C URENIS %!2#( C URENIS C URENIS THELIMITSOFTECHNICAL Traders.com/reader SD /C SOFTWAREEXPLORES LIKE3TRATA3EARCH HF

bottomed inearly .OOTHER ˆ occur untilJanuary26). (the firstcloseabove1.2505didnot fell intoanotherconsolidationpattern January. to therallyfrombottomofthatconsolidationclosinghighin ber lowstothetopofmid-December/earlyJanuaryconsolidationissimilarinsize FIGURE 1:USDOLLAR/SWISSFRANC(USD/CHF),DAILY. ary oftheconsolidation—U C 11. TheU intraday highof1.2507onJanuary following sessions,makingan HF

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■ SD / Bulkowski, Thomas[2000]. S UGGESTED Wiley &Sons. clopedia OfChartPatterns The rallyfromtheearlyDecem- See www.Traders.comformore. This articlewasfirstpublishedon3/7/2007. Traders.com/reader

READING July/August 2007 , John Ency-

eSIGNAL Copyrights 2007 © Technical Analysis, Inc. All rights reserved. be heading higher. heading be frames and looks as though it will it though as looks and frames broke resistance levels in two time two in levels resistance broke w ASCENDINGTRIANGLES July/August 2007 Dollar Index($X L two last the over surge big a With by ArthurHill A T An Ascending added tothebreakoutpointforan vance. Thelengthofthepatternis nals acontinuationofthe2003ad- ing triangleandabreakoutat80sig- the dotsheregivesusabullishascend- around 70(grayarrows).Connecting reaction lowat68,andahigher are tworeactionhighsaround80,a triangle overthelastthreeyears.There and thenformedalargeascending eeks, the Australian Dollar Index Dollar Australian the eeks, www.winningedgesystem.com riangle For The Tradable: ussie Comprehensive manualand coaching. Weekend andlive Professional traderteaches Winning EdgeS&P tive (Figure1).TheAustralian for somelong-termperspec- et’s startwiththemonthlychart Private tutoringandlive T Winning EdgeDayAnd Swing Trading Signals proprietary software. proprietary FREE ONLINE rading Systems trading workshops. Day &Swing you hisrenowned SEMINARS 1-800-500-5207 $XAD AD ) surgedin2003 Precise, Simple T rading System & Profitable on thedailychart. this levelwouldreversetheuptrend lished keysupportandabreakbelow late JanuaryandearlyMarchestab- tive. Second,thebouncesat77in move backbelow79wouldbenega- security shouldholditsbreakout.A 79.50 turnsintosupportandastrong First, brokenresistancearound79Ð now twolevelstowatchforsupport. berÐDecember advance.Thereare signaled acontinuationoftheOcto- broke consolidationresistanceand bears (aconsolidation). pitched battlebetweenthebullsand ture ofthedeclineshowsaneven- for acorrection,andthechoppyna- dation. Theretracementisnormal and hascharacteristicsofaconsoli- retraced 50%oftheprioradvance 77 lookslikeacorrectionbecauseit unusual pattern,thedeclinebackto looks likeamegaphone.Despitethe The patternisnotaflagorwedgeand to March2007(magentatrendlines). unusual consolidationfromJanuary cember 2006andthenformedarather index surgedfromOctobertoDe- upside targetaround92. The surgeandbreakoutat79.50 On thedailychart(Figure2), For moreinformation, visittheS&Cadindexat

■ triangle overthelastthreeyears. a consolidationfromJanuarytoMarch2007(seetrendlines). FIGURE 2:XAD,DAILY. FIGURE 1:XAD,MONTHLY. Traders.com/reader The indexsurgedfromOctobertoDecemberandthenformed This indexsurgedandthenformedalargeascending See www.Traders.comformore. This articlewasfirstpublishedon3/22/2007. Traders .com ¥ page21

TELECHART 2007 Copyrights 2007 © Technical Analysis, Inc. All rights reserved. with anoscillatorliketheM to confirm2Btestswheneverpossible — helpyoustayinthenewtrend.Ilike gram, directionalmovement,andmore reversal in the EUR/USD. the in reversal the USD/CAD currency pair. currency USD/CAD the opportunity for correction or correction for opportunity that’s showing signs of reversal? Try reversal? of signs showing that’s December 2006 highs provides an provides highs 2006 December REVERSAL Looking for a long-term bear market bear long-term a for Looking by DavidPenn Currency The Canadian Bear HuntingIn REVERSAL vergence/divergence (M trendlines, themovingaveragecon- cators —betheymovingaverages, let yourfavoritetrend-followingindi- market isreversingdirection,andthen indicators. Leta2Btesttellyouthat a newlow. 2B bottomsetupthatgoesontorecord is timetoexit.Thesametruewitha up tosetanewhigh,thenyouknowit example, andthemarketmovesback risk lies.Ifyoutradea2Btop,for and speculatorsseeexactlywheretheir because thepatternitselfhelpstraders or bottomofagivenmarket,butalso because itoftencapturestheexacttop test isanexcellentscreennotonly I’ve trieditwith:the2Btest.The well onjustabouteverytimeframe most frequentlyisonethatworksvery for stocksandotherchartablemarkets. technical toolsandstrategiesthatwork to profitusingmanyofthesamebasic traders inboththeshortandlongterm selves canbeagreatopportunityfor the USdollar,forexmarketsthem- what isgoingoninassetslikegoldand in gettingabroaderunderstandingof I F by DavidPenn Euro? A 2B Top In The gram (theM page 22¥Traders ailure to follow through above the above through follow to ailure 2B testsalsoworkwellwithother One ofthemethodsIliketolookfor Tradable: ’ve beenspendingmoreand change charts.Whileoftenhelpful time latelylookingatforeignex- ACD EUR/USD .com H hasbothtrend- ACD ACD ) histo-

histo- E is likelytobespotted“inthewild.”The an excellentexampleofthissetupasit ment throughout thedecade—you decades —andmaintainedthat invest- the beginningofeach pastfew made asingleinvestmentdecision at Marc Faber.Faberobserved that ifyou from internationalmoney manager O chart oftheE the nexttrade. winning setupbeforeabandoningitfor test tostartshowingthemakingsofa how muchtimeyoushouldgivea2B to createatimestopletyouknow 24, 2007),the2Btestitselfcanbeused backs, AndGamingThe2B,”January Money.com recently(“Breakouts,Pull- As IwroteinanarticleforWorking- ideal indicatorformanysituations). measuring capabilities,makingitan following andoverbought/oversold short side. ability tomovehigherinthenearterm,likelypromptingbets will maketradersandspeculatorssuspiciousoftheEUR/USD’s Failure tofollowthroughbeyondthenewhighcreatedinMarch top betweentheDecember2006andMarch2007peaks. FIGURE 1:EUR/USD,WEEKLY. bowl-shaped correctionthatlastedinto pulled backandbeganascalloped, after rallyingforafewmonths,then UR The 2BtopinFigure1,theweekly Tradable: /U SD ne ofthemostinteresting— read aboutthemarketscame or haunting—thingsI’veever

made ahighinDecember UR USD/CAD /U SD , sofarrepresents The EUR/USDshowsclearlythe2B you wouldhave prettymuchtaken them for10yearsandthensold them, stocks (especiallytechstocks), held sold them,thenboughtAmerican nese stocks,heldthemfor 10 years, 10 years,thensolditandbought Japa- you hadboughtgoldin1970,helditfor had beenvirtuallyleftfordead. of moneyonanumbermarketsthat could havemadeatremendousamount divergence intheM many are,issupportedbythenegative were allcleartobetagainsttheE the initialhigh,tradersandspeculators cember 2006sessionthathadfeatured reversal orcorrectiontothedownside. ing higherandthatmightberipefora market thatwillhavedifficultymov- peaks. This,too,isaclassicsignalof 2), justaspricesaremakinghigher peaks inFebruaryandMarch(Figure U U The M As soonastheretreatfoundE shortly afterthenewhighwasmade. other rimofthebowl—theyretreated rallied totesttheDecemberhigh— the springof2007.However,asprices SD SD In summary,Faberobservedthatif The bearishnessofthis2Btop,as movinghigherinthenearterm. fallingbelowthelowofDe- ACD

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histogram. UR UR / / retracement oftheE and wouldrepresenta61.8% about 1.3072isonereasonabletarget, February andMarchpeaks,alowof far astargetsgo,thelowbetween week afterthepatterniscomplete.As at leastlimitlossesbytheseventh should belookingtopreservegainsor mentioned, thismeansthattraders in theWorking-Money.comarticleI Based onthemethodologypresented rated byapproximately14weeks. it appearsasifthetwopeaksaresepa- profitably? LookingbacktoFigure1, speculators givethe2Btoptoplayout from theearlyJanuary2007low. How muchtimeshouldtradersand In additiontothelonger-term2Btop See www.Traders.comformore. This articlewasfirstpublishedon3/27/2007. UR July/August 2007 /U SD

advance

■

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. been developingbetweenthepriceofU bullishness liesinthepositivedivergencesthathave a bearmarketthathasyettorunitscourse. bear market,orifitismerelyapauseinthemidstof represents thebeginningofendthatfive-year bounce, whichbeganwiththesummerof2006lows, (Figure 1).Thequestioniswhetherthecurrent falling againsttheloonieforfiveyearsrunning to suggestthat,onbalance,thegreenbackhasbeen 2006 roughlyflattoupslightly,itisnotatallunfair began inlate2004(thatis,thefirst,positiveM histogram (Figure2).Thesepositivedivergences July/August 2007 histogram peak duringthebouncethat began in views ofU 2004) andareclearinbothweekly andmonthlychart between thetroughin2003andlate histogram divergenceinthemonthlychartwas the movingaverageconvergence/divergence(M the U currency pair. dollars, asexpressedbythechartsofU market forbuyingUSdollarsandsellingCanadian one suchsupersizedbearmarketappearstobethe recent attentiontotheforeignexchangemarkets, tors willingtoforagethroughtherubble.Withmy bear marketsthatcancreaterealbargainsforinves- long-term, multiyearchartsforthekindofjumbotron science suchinvestmentmighthaverequired). little effort(aside,perhaps,fortheexceptionalpre- ment trendsofthepast30-plusyearswithrelatively maximum advantageofsomethestrongestinvest- dian dollarmovesclosertowardparwiththeUSdollar. momentum tothedownsideisgraduallywaningasCana- weekly MACDhistogrambeginningin2004suggeststhat called, sinceearly2002.Theseriesofshallowertroughsinthe 30% againstthe“loonie,”asCanadiandollariscolloquially market intheUSD/CADhasseengreenbacklosemorethan FIGURE 1:USDOLLAR/CANADIANDOLLAR,MONTHLY. vides anotherpotentialclue. ThesizeoftheM For thebottom-feeders,bestreasonfor Along thoselines,theM It wouldbehardtoequivocatethebearishnessof This sortofthingoccasionallyhasmelookingat SD /C AD SD /C

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eSIGNAL • SubscribetoOurFree“Trend Weekly” E-Letter • Target 100%Gains withMinimalRisk • Your PortalforProfits W bounce fromthesecondhalfof2006(seeFigure1). gences buildastheUSD/CADmoveslower,correcting FIGURE 2:USDOLLAR/CANADIANDOLLAR,DAILY. allStreetWindow.Com • InnovativeCompaniesinNicheMarkets • CupandHandleChartFormations • ChartsWith Top Relative Strength • 100%RevenueGrowth For moreinformation visittheadindexat Go toWallStreetWindow.Com • TheGreatTraders FollowtheTrends • 16,000Subscribers Can’t beWrong • We IdentifyStocks inTrend Sectors Positive diver- Traders.com/reader May 19,2004). Penn, David[2004].“Post- S Money yearsago,theM 06 decline.AsIwroteforWorking previous bouncesduringthe2002Ð any ofthepeaksthataccompanied — andbyawidemarginthan the secondhalfof2006waslarger Breakdown M reversal totheupside(seemy“Post- predictive ofamarketbottomand gram peaksofthissortcanoftenbe UGGESTED price ofU developing betweenthe that havebeen positive divergences bullishness liesinthe the bestreasonfor For thebottom-feeders, M Traders.com Advantage Breakdown M ACD See www.Traders.comformore. This articlewasfirstpublishedon4/16/2007. histogram. Traders SD

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. ey two majorcurrencypairs:theE spontaneous combustion before our very our before combustion spontaneous U REVERSAL case ofthebearmarketinU potential harbingerofareversal,thistimeinthe reversal waspossible. looked topositivedivergencesasasignalthat was anexampleofa2Btopatworkandthelatter Currency” fromApril16,2007).Theformercase 27, 2007,and“BearHuntingInTheCanadian M slow-motion, its continues dollar US the As by DavidPenn Swiss Franc In The USDollarÐ 2B Test OfBottom and thenbouncedoverthebalanceofmonth 1.2575. Thisdownleghitabottominmid-March late January2007afterthemarkettoppedoutnear current legdowninthiscurrencypairbegan franc looms. franc page 24¥Traders SD Once againIamlookingtothe2Btestas es, an important test against the Swiss the against test important an es, Tradable: /C Renew Subscribe Hot Deals! S&C Wear Software Books Articles T Magazines AD raders.com

(“A 2BTopInTheEuro?”fromMarch examined thepossibilityofreversalin takes ontheforeignexchangemarket y lasttwoTraders.comAdvantage USD/CHF .com UR /U SD SD /C • • • • • • HF

and the S S http:// subscriptions renew your Easy tostartor S&C products Full lineof as $2.95 Prices startaslow soon astransactionisapproved File availableforyoutodownloadas Convenient credit-cardtransaction PDF versionsofpastarticles . The T T OCKS OCKS Get theexactinformation you wantonlineatthe be consideredhavingtrulyreversed. — toapproximatelythe1.2175levelforUSD/CHF CHF wouldthenneedtorallyabovethehighofinitiallow show significantfollow-throughtothedownside.TheUSD/ dollar togainontheSwissfrancifUSD/CHFfailed the March2007lowsprovidesanopportunityforUS FIGURE 1:USDOLLAR/SWISSFRANC,DAILY. low onanintradaybasis. down againthroughmid-month,takingouttheMarch topped outinthefirsthalfofAprilandbeganmoving and intoApril.Themarket,asshowninFigure1, store.traders Online Store. Online Store. &C &C OMMODITIES OMMODITIES .com An Aprilretestof

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eSIGNAL between theU the trendinU points higher.Shortofaccomplishingthisfeat, level isapproximately1.2175,some150-odd that markedtheinitialMarch2006lows.That need tobounceupabovethehighofsession down ispossible. with theDecemberlowsnearly140pipsfurther support attheMarch2006lowsnothold,areunion December 2006lows.Thissuggeststhatshould point thanawagerinfavor. a betagainstthepairstillmorereasonableatthis separate occasionsduringthelowsof2006. vided supportforthefallingUSD/CHFonatleasttwo clear toseethatthe61.8%retracementlevelhaspro- monthly viewonchartsthissmall,butwithitis FIGURE 2:USDOLLAR/SWISSFRANC,MONTHLY.Ittakea make-or-break territoryfortheU testing theMarchlowsforsupport.Whilethisisnot _____ [2007].“BearHunting InTheCanadian Penn, David[2007].“A2BTopInTheEuro?”, S of bottom?NotonlywouldtheU — donothold. bottom seenintheshorter-termchartfromFigure1 should thisretracementlevel—andthe2Btestof March 2006lows),butalsotheU beyond currentlevels(whichapproximatethe show littleornofollow-throughtothedownside C C also revealsthedownsideavailabletoU support inthewakeoftoplate2005.Thischart level thathasontwopreviousoccasionsprovided another opportunityforsupportthefallingU December 2006lowsnear1.1900waittoprovide HF HF UGGESTED Figure 2,alonger-termmonthlylookattheU This mostrecentmovedownfindstheU What wouldberequiredforasuccessful2Btest Currency” Traders.comAdvantage Traders.com Advantage , showsboththe61.8%Fibonacciretracement — thereispreciouslittlebywayofsupport SD

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. positive divergences. positive from oversold conditions and conditions oversold from 500 continues to forge a bottom a forge to continues 500 meltdown? are youtakingthepainofFebruary meltdown, the Standard & Poor’s & Standard the meltdown, July/August 2007 T market the after days the In by DavidPenn Bottom Building ABetter REVERSAL exception): 2003, wasoneparticularlymemorable Moment IsUponUs,”fromMarch17, his excellentdispatch,“TheExquisite tively shortinnumber(JimCramer, desks screaming“BUY!”wererela- But atthetime,thosestandingontheir hadn’t beenseensincethemid-1990s. a buyingopportunitythelikesofwhich been moreclearthatautumn2002was impulse. Inhindsight,itcouldn’thave tion —wasaccompaniedbythislatter shortly ontheheelsof2001correc- declines. clines tendtoleadonlyfurthersharp ket psychologyinwhichsharpde- is generallytheproductofabearmar- smoke clears”impulse.Thisimpulse 1998. Thesecondisthe“waituntil bull marketslikethosein1987and the experienceofseverecorrectionsin panic” impulse,largelyborneoutof of February.Thefirstisthe“buy and speculatorsexperiencedattheend Are youanervouslong?Ifso,how I’d arguethatthe2002correction— Tradable: can’t takethepain.” weakness ofthenervouslongswho before thewarbegins,andbuy was in1991:Waituntil24hours exquisite momentisthesameasit is uponus.Theideabehindthe to act.Ithinktheexquisitemoment We nowarecloseenoughtothewar collapse liketheoneinvestors pulses inthewakeofamarket here aretwocontradictoryim- $SPX C H A RTP A TERNS C H A RTP A TERNS C H A RTP A TERNS C H A RTP A TERNS C H C H AA RTP RTP AA TERNS TERNS C H A RTP A TERNS C H A RTP A TERNS C H A RTP A TERNS C H A RTP A TERNS C H A RTP A TERNS C H A RTP A TERNS C H A RTP A TERNS of traderstoexploit. be tooswiftforallbutthemostnimble ceed, thesubsequentmovehighercould once. likely needtoattack1415morethan such, anymovebeyondthatlevelwill can drivethemarketthrough1415.As ing toattackanybullsthatthinkthey there isasmallbattalionofbearswait- point (seeFigure2).Infact,Isuspect that theS&P500canrallyabove precious littleresistanceintheevent resistance atthe1415level,thereis while thereisasignificantpotentialfor retracement ofthecorrection. 1455 leveloralmostacomplete gests thepotentialforabounceto the valueatresistancelevelsug- about 1375.Addingthisdifferenceto mately 1415andthecorrectionlowat nearest resistancelevelatapproxi- the currentlow.Inthiscase,wefind location ofthenearestresistanceand swing ruleapplicationbasedonthe vious, wayistolookforapossible potential bounces.Thefirst,mostob- 500? Therearetwowaystogauge gested bythehourlychartsofS&P See Figure1. has drawnnear—isnolessapparent. shorting isoverandthetimeforbuying nal theyaresending—thatthetimefor chastic areveryclear-cutandthesig- gence (MACD)histogramandthesto- moving averageconvergence/diver- their utility.Thedivergencesinthe the equipmentisnoargumentagainst sold readings,butthecommonnessof sue: indicatordivergencesandover- this bottom-buildingarestandardis- between 1390and1370.Thetoolsof the S&P500attempttobuildabottom that phrasecomestomindasIwatch the runwayforherplanetotakeoff), the titlecametoherwhilewaitingon metaphysical notionsinmind(shesaid Brief.” WhileIthinkKuminhadmore titled “OurGroundTimeHereWillBe But shouldanyofthoseattackssuc- What makesthisinterestingisthat What sortofupsideisbeingsug- I oncereadapoembyMaxineKumin See www.Traders.comformore. This articlewasfirstpublishedon3/7/2007.

■ potential forfurtherretracementshouldthe38.2%barrierbe breached. level. However,thereisadearthofresistancebeyondthat point,suggestingthe meet resistanceinthe1410area,whichcoincideswith38.2% Fibonacciretracement FIGURE 2:STANDARD&POOR’S500,HOURLY. to theupsideisincreasinglylikelyinnearterm. histogram spikeonthebounceinrecentdaysisanothersignthatasignificantmoveback 500 isrunningoutofmomentumtothedownsideinearlyMarch.ThesizeMACD convergence/divergence (MACD)histogramandthestochasticsuggestthatS&P FIGURE 1:STANDARD&POOR’S500,HOURLY. Negative divergencesinthemovingaverage Any bounceintheS&P500islikelytofirst Traders .com ¥ page25

PROPHET FINANCIAL Copyrights 2007 © Technical Analysis, Inc. All rights reserved. page 26¥Traders

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. S&P 500, a 2B pattern appears. pattern 2B a 500, S&P momentum to the downside in the in downside the to momentum REVERSAL histogram andthestochasticon T waning of sign another In by DavidPenn The S&P500 2B BottomIn Short-Term gence/divergence (M tors likethemovingaverageconver- divergences inindicatorsandoscilla- bottoms, inmyopinion,arepositive Two ofthebetterwaysspotting perhaps anotherinitiativeinthateffort. quite allthatitiscrackeduptobe. signs thatthiscorrectionmightnotbe part ofwhatmademesoeagertofind near” wayoflookingattheworldwas And thatswiftshifttowardthe“endis correction intheearlyspringof2007. market madeitsvery-long-overdue pessimism amonginvestorsasthe pointed tothedramaticincreasein A numberofcommentatorshave stallment of“TheBottomIsComing!” A BetterBottom”fromMarch7). Bounce” fromMarch1,and“Building from February27,“BettingOnThe Fibonacci ForagingForABottom” began movinglower(“TheS&P500’s Poor’s 500almostsincethemarket current correctionintheStandard& looking forsignsofabottomtothe for moreonthatprojection),I’vebeen Money.com article,“FifthOfAFifth,” level (seemyFebruary28thWorking- page 28¥Traders

This 2BbottomintheS&P500is So forgivemeifIpostanotherin- Tradable: visit • • • -Cutting-Edge Trading Platforms? • • • Does Your CurrentCommodityBrokerOffer: highly competitiverates. traders withcutting-edgetechnologyandbackupsupportat Field FinancialGroup(FFG)hasbuiltitsreputationbyproviding Don’t Trust Your FuturestoJust Any BrokerageFirm! FREE SubscriptiontoMonthly Trader UpdateLetter V Broker-Assisted Trading?

ALL Pit&Electronic U.S.Futures&OptionsMarkets? Online Tradingwith: IRA (ROTHand Traditional) Accounts? Deeply DiscountedCommissions? If youansweredNO -Real Time Quotesand Charts? -Backup OrderDesk? -Professional HelpDesk? erbal Trading? For moreinformation visit www.fieldfinancial.com FIELD would formataroundthe1460 cions thatanimportanttop ruth told,inspiteofmysuspi- Futures andoptionstradinginvolvesriskofloss. for your $SPX .com FREE Starter’s Kit FREE Starter’s ACD Financial Group to anyoftheabovequestions ) and M ) and Traders.com/reader

or call ACD 800-800-6304 and cators —theM positive divergencesintwokeyindi- previous low).Andthecontextof high enoughtotakeouttheof low-through fromthelowerlowrallies methodology (buywhenthenonfol- to triggerabuysignalinthe2Btop (early inthemonth)wasbested. session highfromthepreviouslow much sothatonanintradaybasis,the the S&P500movedhigher—so wake ofthelowerlowinmid-March, first. Ratherthanmovinglowerinthe The secondfactorfollowsfromthe the marketlowerduringsession. pletely thwartedintheirefforttomove This meansthatthebearswerecom- symbolizing themidmonthlowerlow. “shadow” or“tail”onthecandlestick in thenearterm.Thefirstislong alert traderstothepotentialforupside factors aboutthislowerlowthatshould mid-March. However,therearetwo moved lowertomakealowin into resistanceatthe1410area,then made alowinearlyMarch,bounced finally developedexamplesofboth. current correctionintheS&P500has other. Atpresent,itappearsasifthe one hand,and2Btestsofbottomonthe expected thatthenexttimeS&P half ofthemonth.Anditshouldbe when itwasencounteredinthefirst blocked thebounceinS&P500 1405–1410 level—resistancethat moving averageresistanceatthe bounce bring?Thereissignificant month. to makeanevenlowerlowlaterinthe to movelower,andeventuallymoving the marketreverseditsbounce,began mental stop,abandoningthetradeif of thelowerlowinmid-Marchasa nothing else,atradercouldusethelow trader canexpect(seeFigure2).If market-moving-higher insuranceasa stochastic —providesaboutasmuch That kindofmoveisusuallyenough Figure 1showshowtheS&P500 What sortofupsidemightthe ACD about 1410. intratrough highat near 1360andthe midmonth lowerlow is basedonthe 1440Ð1450 area.This ity ofamovetothe suggests thepossibil- in mid-Marchthat troughs inearlyand based onthetwo swing ruleprojection That said,thereisa ficulty onceagain. some measureofdif- level therewillbe 500 encountersthis

histogram andthe ■ ______[2007].“FifthOfAFifth,”Work- ______[2007].“BuildingABetter ______[2007].“BettingOnTheBounce,” Penn, David[2007].“TheS&P500’s S term. to thelikelihoodthatthis2BbottomwillresultinhigherpricesS&P500near in asessionduringwhichbuyerswereabletoclosethemarketfarfromlowsadds FIGURE 1:STANDARD&POOR’S500,DAILY. 2Bbottom. histogram andthestochasticboth helpsupportthecaseforabounceinwakeofthis FIGURE 2:STANDARD&POOR’S 500,DAILY. UGGESTED ing-Money.com article,February28 March 7. Bottom,” Traders.com Advantage, Traders.com Advantage Fibonacci ForagingForABottom,” See www.Traders.comformore. This articlewasfirstpublishedon3/16/2007. Traders.com Advantage,

READING , February27. March 1. The factthatthelowerlowinMarchoccurred Positive divergencesinboth the MACD July/August 2007

PROPHET FINANCIAL Copyrights 2007 © Technical Analysis, Inc. All rights reserved. FIGURE 1:S&P500FUTURES,WEEKLY. around eachlevel. literally thousandsoftraders,withprestagedstoporderstobuyorsellclustered was accompanied bybothpositivedi- ary, butthelowerlowinmid-March 540-point collapseattheend ofFebru- the wakeofmarket’sfive-session/ only hadpessimismramped swiftlyin support. fo reflects little more than testing than more little reflects Jones Industrial Average so far so Average Industrial Jones views? chart July/August 2007 I Dow the in correction current The by DavidPenn Breakout T BREAKOUTS S weekly in bias trend a there Is by AustinPassamonte Fed Up? TECHNICALANALYSIS rm esting The Russell 2000 Tradables: Tradable: n manyways,themid-March2007 Average (D bottom intheDowJonesIndustrial er resistance for present for resistance er ince thebroadmarketplungeon tors havebeenseekingbottoms February 27,tradersandinves- $INDU S&P500, JIA ) wastextbook.Not

Common retracementlevelsarefollowedby prestaged stoporderstobuyorsell erally thousandsoftraders,with retracement levelsarefollowedbylit- tion (Figure1).Thesecommon next widelywatchedlinesofdemarca- contract, with1425andthen1438the magnet iscurrently1414intheES at the38%retracementlevel.That subsequent lowsseeseachliftstallout price actionfromrecenthighsthrough the sellers? this periodjustapausethatrefreshes printed recentlowsthatwilllast,oris at everyturn.Havethemajorindexes vening high.As such,thereisalikeli- — aswellatthelevelof theinter- which previouslyactedasresistance exponential movingaverage (E support comesfromboththe 20-day port atthe12360level,itseems. This There isasignificantamountofsup- between thetwotroughsinMarch. is equivalenttotheinterveninghigh representing thebreakoutlevel,which to 12360—withthelatterlevelalso consolidation, sofar,isroughly12510 begun toconsolidate.Therangeofthis Figure 1). trials wereclosingabove12460(see level. Threedayslater,theDowindus- lower lowinmid-Marchatthe12190 2007) wasfilledthreedaysafterthe tom InTheS&P500”fromMarch16, Advantage article“Short-TermBot- 2B bottomsetup(seemyTraders.com vergences anda2Bbottomsetup.That For thepasttwoweeks,measuring Since thatclose,theindustrialshave MA ) —

TRADESTATION further first. pressing firsttestsofeachmarkifandwhenpriceactiongetstherebeforedropping FIGURE 2:RUSSELL2000FUTURES,WEEKLY. the industrials’minicrash. the highsoflateFebruary,daysbefore make foraninterestingchallengeto least the12,770level,whichwould the D about 410andabreakoutlevelof12360, exceeded. Withaformationsizeof year-to-date highswillbetested,ifnot there isagoodchancethecurrent, dustrials againbeginmovinghigher, bottom —suggeststhatwhenthein- bottom pattern—asortofdouble before vaultinghigheragain. ways alongthe12360supportlevel lower, theindustrialswillmoveside- hood that,ratherthancorrectsharply possible priceactioncouldchopside- retracement toholdhighwater.It’s still hasplentyofstrength,expect50% wrest control.Iftherecenttrendlower sellers wouldcoverasbuyersstepinto 62% valuesonaweeklybasis,most now. SeeFigure2. out recentupsideattemptspriorto can seewherethe794zonehastopped there beforedroppingfurtherfirst.We of eachmarkif/whenpriceactiongets areas willseesellerspressingfirsttests clustered aroundeachlevelrightnow. the advance. This allowsustouse low themaintrendlinethathas guided past severalsessionsbroken downbe- root, asimpleuptrendthathas overthe basis. Wecanseehowthebounce is,at Figure 2showstheD Applying theswingruletoMarch Should priceactioncloseabovethe Russell 2000levelsat801and810 JIA

should beabletorallyat JIA

on anhourly The Russell2000levelswillseesellers pending trendactionahead. on thescaletellsalotaboutcurrentand weekly chartandwherepriceactionis market action.Keepingoneeyeonthe most widelyusedmeasuresofpending stock indexmarkets. this weektoshake,shock,andawe of marketcatalystsarestraightahead ways insidethesegridvalues,butplenty market failsto reasserttheprevious break. Thethirdstageoccurs whenthe trend thatexistedbeforethe trendline tempt bythemarkettoreassert the The secondstagerepresents theat- first stageistheinitialtrendline break. trend reversalintothreestages.The Essentially, the1-2-3testbreaks one ofthosetrend-indicatingtools. prospects foranypullbacks. stand theprogressofrallyand other trend-indicatingtoolstounder- Retracement gridsareoneofthe The 1-2-3trendreversaltestisjust See www.Traders.comformore. This articlewasfirstpublishedon3/20/2007. Traders .com ¥ ■ page29

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. wedge. but the move looks like a bearish a like looks move the but market over the past few weeks, few past the over market bounced with the rest of the of rest the with bounced B Index Semiconductor The by ArthurHill SOX For The A Rising Wedge WEDGEFORMATIONS Penn, David[2007].“Short-Term S this short-termdownturnaswell. test ofbottom—signalingtheend — orevenanother,shorter-term,2B the possibilityofapositivedivergence below, tradersshouldbeonguardfor watching. Giventhesupportnearby break. Rightnow,thisistheareaworth beyond thelowofinitialtrendline addition, themarkethasyettomove appears tohavefallenquiteshort.In and attempttoreasserttheuptrend second stageiscomplete;thebounce stage hasbegun.Itishardtotellifthe taken place.Ataminimum,thesecond first stage—thetrendlinebreakhas trials inFigure2showsclearlythatthe trendline break. point establishedinthefirststage, trend andmovebeyondtheextreme conductor Index($S dent ontheresolutionofthis pattern. A The nextlong-termsignalisdepen- little moreinthefirstquarterof2007. last quarterof2006andnarroweda 1). Thetradingrangewasnarrowinthe chart lookslikeaflattriangle(Figure between bullsandbears. extended consolidationorstalemate moving sideways,anditrepresentsan 26, 2007.Thatisalongtimetobe 2006 andclosedaround478onMarch index reached473inmid-September solidated thelastfewmonths.The July toNovember2006andthencon- page 30¥Traders UGGESTED So far,thechartofhourlyindus- The patternatworkontheweekly Tradable: Traders.com Advantage Bottom In efore lookingatthiswedge,it term picturefirst.TheSemi- often helpstolookatthelong- $SOX

READING .com The S&P500,” OX ) advancedfrom , March16. ■ breakdown onthepricechart. down andthiswouldconfirm awedge would turnthestochastic oscillator old towatch.Amovebackbelow50 moved above50,andthatisthethresh- on thebearishside.Theindicatorjust wait forittoturndownbeforejumping lator isalsomovinghigher,andIwould the Januarylow.Thestochasticoscil- prior declineandtargetamovebelow This wouldsignalacontinuationofthe 466 wouldbreaktheriseofthiswedge. lower wedgetrendlineandsupportat tially bearishsignal.Abreakbelowthe the stochasticoscillatorforapoten- the nextfewdays. should watchpriceactioncloselyover pattern canbebearishandtraders as longthewedgerises,butthis rising wedge.Thebullshavetheedge March, andthisreboundlookslikea swing held.Theindexreboundedin the mid-Februarylow,andup- decline wasnotquiteenoughtobreak at theendofFebruary.Thissharp swing isup,buttheindexgothithard been theeasiesttocatch.Thecurrent triangle, andthesesignalshavenot ure 2)forswingsignalswithinthe for signals. look totheswingswithinthistriangle Until thereisabreakout,tradersmust a breakbelow450wouldbebearish. break above495wouldbebullishand initial attempttomovehigher. day EMAhadservedasresistanceduringtheindustrials’ between thetwolowsinearlyMarchandmid-March.The20- moving average(EMA)aswelltheinterveninghigh support comesinboththeformof20-dayexponential of themonthtestingthatlevelforsupport.Notethis bottom patterninlateMarchandarespendingthebalance FIGURE 1:DJIA,DAILY. I amcueingoffwedgesupportsand I amturningtothedailychart(Fig- See www.Traders.com formore. This articlewasfirstpublishedon3/27/2007. The industrialsbrokeoutfromtheir

■ mid-February low,andtheupswing held. FIGURE 2:$SOX,DAILY. pattern seenhere. FIGURE 1:$SOX,WEEKLY.Thenextlong-termsignalisdependentontheresolutionof

PROPHET FINANCIAL The sharpdeclineseenherewas notquiteenoughtobreakthe yet totakeoutkeysupportbetween12,350and12,300. on theselldayssincetrendlinebreak,industrialshave setting upa1-2-3trendreversaltest.Inspiteoflargevolume short-term topandbreakdownbeneathitskeytrendline, FIGURE 2:DJIA,HOURLY.Therallyintheindustrialsmakesa See www.Traders.comformore. This articlewasfirstpublishedon3/29/2007. July/August 2007

TELECHART 2007 Copyrights 2007 © Technical Analysis, Inc. All rights reserved. July/August 2007 Traders .com ¥ page31

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. page 32¥Traders The WyckoffMethod. Also available:ChartingTheStockMarket: past S&Carticlesbyyear,through1999. Completely indexedbookcompilationsofall Traders’ Series Professional Technical Analysis of of Analysis Technical what you trade or your level of experience, S what youtradeoryourlevelofexperience, else —pageafterofpracticalsystemsandstrategiestakenstraightfromthetradingfloortechnicalanalysts.Nomat technically, mentally,andpsychologically. CAN’T WAIT? ORDERONLINE AT: SHIPPING &HANDLINGFORBOOKS Outside US 2nd DayAirUPS(48states) Ground UPS US Orders Qty. ◆ ◆ ◆ Most booksaresoftcover. S&C onDVD pgs.) S&C onDVD 204 (6"x9", DVD S&C on Market S&C onDVD Stock The S&C onDVD Charting Volume 17 Volume 16 Volume 15 Volume 14 Volume 13 Volume 12 Volume 11 Volume 10 Volume 9 Volume 8 Volume 7 Volume 6 Volume 5 Volume 4 Volume 3 Volume 2 Volume 1 DVD isWindows2000/XP/Vista http://www.Traders.com/Documentation/library.html For descriptionsofcontents,goto Chart formations Indicators &oscillators Computerized tradingsystems Surface/World 2000/XP/Vista For Windows upgrade (1987, 8 1/2" x 11", 387 pgs.) 387 pgs.) 11", x 362 1/2" pgs.) 11", 8 x 269 1/2" (1987, pgs.) 11", 8 x 224 pgs.) 1/2" (1986, 11", 8 188 x 11", 1/2" (1985, x 8 1/2" 8 (1984, (1982-3, (1999, 8 1/2"x11", 704 pgs., hardback) pgs., 704 hardback) pgs., 1/2"x11", pgs.) 720 8 720 (1999, 1/2"x11", pgs.) 8 693 1/2"x11", (1998, 8 pgs.) 683 1/2"x11", (1997, 8 pgs.) 686 1/2"x11", (1996, 8 pgs.) 648 1/2"x11", (1995, pgs.) 8 667 1/2"x11", (1994, pgs.) 11", 8 x 606 1/2" (1993, pgs.) 11", 8 x 607 1/2" (1992, pgs.) 11", 8 x 488 1/2" (1991, pgs.) 11", 8 x 482 1/2" (1990, 11", 8 x 1/2" (1989, 8 (1988, upgrade( upgrade version9.24 upgrade .com .0$2.10 $ 6.50 .0$0.65 $ 6.30 1st lb. lb. or part lb.or lb. 1st 25 1.25 12.50 (from S&ConCDv7.22) (from S&ConCD6Xor5X) (from S&ConCDv8.23) all otherver.,w/returnof1.12or2.15) Each add. (Volumes 1-24) (Volumes S TOCKS Shipping &handlingforBooks

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, TheTraders’Magazine book…save PRICE EACH TOTAL PRICE TOTAL PRICE EACH $162.38 SUBTOTAL Traders.com Advantage… Traders.com TOTAL July/August 2007 S&C on DVD on S&C * Alsoadd ª … . TE07A1 ✃ ✃ Copyrights 2007 © Technical Analysis, Inc. All rights reserved. always bet on 2B. on bet always REVERSAL July/August 2007 climax andthe opportunityforabounce. a 2Bbottom.Notealsothesurge involumeonFriday’slow,suggestingaselling teristic lackoffollow-through to thedownsideaftermakingalowerlowthatmarks irregular, thelowerlowonFriday morningneverthelessshowsthesortofcharac- FIGURE 2:EMINISTANDARD& POOR’S500,JUNEFUTURES,15-MINUTE. A F by DavidPenn 2Bs The Three minute Juneemini,Iwrote: With regardtothe2Bbottomin15- occurred sincethemarketbounced. shorter, smallercorrectionthathas more thanalittleimpatientwiththe correction. Butithasalsomademe indicative ofabottomtothegeneral larly aggressiveinlookingforpatterns beginning. Thishasmademeparticu- of thecorrectionvirtuallysince February 28,2007),I’vebeenadoubter (“Fifth OfAFifth,”WorkingMoney, occur inthe1460areaofindex suggesting thatanimportanttopwould (Figure 1).AsI’vewritten,inspiteof dard &Poor’s500futurescontract minute chartoftheJuneeminiStan- or picking tops and bottoms, and tops picking or Tradable: shortly after2:00pmE the buystop,whichwasfilled low adaylatercomes,1430.25is When thebouncefromlower high ofthatsessionwasat1430.25. gan atabout9:45amE ing the15-minutesessionthatbe- ... [T]heinitiallowtookplacedur- bottom Ispottedinthe15- ing onanarticleabouta2B few daysagoIstartedwork ESM7 ST . ST . The shortly after10:00am,theE to closeabovetheThursdayhigh,and 9:00 amtheJuneeminiwasstruggling the marketdidn’tmakeitthatfar.By 24, 2007)(Figure2).Unfortunately, The 2B,”WorkingMoney,January “Breakouts, Pullbacks,AndGaming late morningonFriday(seemy need tobetaken—orprotectedby its fromanytradeonthisplaywould stop methodwiththe2Bbottom,prof- brief higherhigh. closing, 15-minutebasis,inspiteofthe emini (E way tothebreakout.WhileJune underscores theexhaustivenatureof range. Theoverwhelmingvolume to closethemarketnearlowof failed attemptonthepartofsellers shows anexhaustiveandultimately was makingitslowonFriday.This long lowershadowastheJuneemini the reversalwasexceptionally reversal wasinthecards.Keyalsoto which suggestedthatstillyetanother third 2B,thistimeanother2Bbottom, E on thesecond,higherhigh.Infact, contract wasunabletofollowthrough its rangeandbrieflyexceededit,the midday, theE Friday morningandplungingtoward tainly wasn’tstayingthere.Peaking have beenheadedlower,butitcer- whence itcame. ing tosendthemarketbackfrom actually confirminga2Btop,threaten- SM I hadspeculatedthat,givenmytime- But afunnythinghappenedonthe The JuneeminiS&P500might 7 actuallyendeduplowerona SM 7) movedbacktothetopof SM 7 actuallyformeda Somewhat SM 7 was whip. Makeitpaydouble!”Whether tion onthesecond2Bbuyaftera “I recommendyoudoubleyourposi- tion Principles OfProfessionalSpecula- section onchartanalysisinhisbook making youabundle.”Infact,in times, theoneyoucatchwillendup two, three,orevenfourconsecutive wrote: “Evenifyougetwhippedout learned the2Breversalmethod, during thatsession. higher highwerebothestablished day, ahigherlowandsubsequent peared tomerelymeanderonMon- ately. Eventhoughthemarketap- push themarkethigher. buyers wouldbeabletostepinand the effort—andlikelihoodthat to thebottomofrangebymid-sessiononFriday. high onaclosingbasis.Thatfailuresetuptradable2BtopthatsenttheESM7back peak betweenthetwolowsonWednesdayandThursdaybutfailedtomakeahigher area showstheinitial2Bbottom.Therallyfromthatbottomralliedashigh FIGURE 1:EMINISTANDARD&POOR’S500,JUNEFUTURES,15-MINUTE. chance. As third, apparently) toms asecond(oreven ready togive2Bbot- that tradesshouldbe exit points—butalso excellent entryand bottoms —marking tops oftenfollow2B that notonlydo2B is worthtakingaway tops andbottoms,it dence intrading2B Sperandeo’s confi- or notyoushare high orlowerlow,the by thesecondhigher risk canbedefined Victor Sperandeo,fromwhomI This movehigherbeganimmedi- , Sperandeogoessofarastosay: long as www.oexoptions.com R For moreinformation visit Daily S&P100 Daily Index Option eal Mentoring FREE Trial a varietyoftimeframes. trade topsandbottomsinmarketson 2B remainsamongthebestwaysto _____ [2007].“FifthOfAFifth,” Penn, David[2007].“Breakouts, S Signals UGGESTED 15 Day WorkingMoney.com WorkingMoney.com Pullbacks, AndGamingThe2B,” See www.Traders.comformore. This articlewasfirstpublishedon4/4/2007. Traders.com/reader Traders

READING The highlighted .com , February28. , January24. ■ ¥ page33

PROPHET FINANCIAL Copyrights 2007 © Technical Analysis, Inc. All rights reserved. wave topandnot afifth-wavetop.This that thetargetof216couldbe athird- could stillbeinathird-wave rise,and chart issuggestingthatthewave count away. in Canada, it is still up, up, and up, up, still is it Canada, in loans facing serious problems, but problems, serious facing loans gage companies that gave risky gave that companies gage house prices dropping and mort- and dropping prices house trouble in the United States, with States, United the in trouble a probabilityfactor(P targeting either158.86or146.19 with index isinafourth-wavecorrection, index. Thewavecountshowsthatthe chart oftheS&P/T Index. T in be may market estate real The by JacobSinger,PhC And In The US Market InCanada The RealEstate ELLIOTTWAVE 1, aweeklychartoftheCanadianR be theirsavior.ThisisshowninFigure rates fallasthemarketfallsthiscould but probablynotforlong.Ifinterest to flipmayhavedifficultyinselling, difficulties. Manybuyerswhobought themselves andfallenintofinancial borrowers havenotoverextended in twotothreeyears,butmortgage nomically, inmanyinstancesdoubling rules. Housepriceshaverisenastro- tious andstucktotheirconservative mortgage companiesremainedcau- West ofthemortgageworld,inCanada, coaxed intobuyingbythewild,wild rose, butwherebuyersintheUSwere risen inthesamespiralthatUSprices estate market?PricesinCanadahave the UniversityofPennsylvania. estate financeattheWhartonSchoolof tile,” saidMs.Wachter,alecturerofreal would makethemarketmorevola- that poorlyunderwrittenmortgages a poorcreditratingandhighdebt. lenders whotargetedhomebuyerswith bought andbought,luredbysubprime ing pricescouldn’tdrop,andbuyers ers boughtintothemyththatUShous- markets havefallenbecauseofit.Lend- page 34¥Traders Figure 1isaweeklyElliottwave But whatabouttheCanadianreal “Wall Streetfailedtounderstand Tradable: stop talkingaboutit,andthe head AlanGreenspancannot he pressisfullofit.Ex-Fed S ECTOR S ECTOR S ECTOR RTRE-T .com SX

TI Canadian R ) of82%.The EIT EIT Better yet,buy theCanadianrealestate and whenthefourthwaveiscomplete. analysis, Isuggestbuyingthe indexas ish long-termfuture.Based onthe short-term correctionwitha very bull- extent. Theindexappearsto beina shown bytheindex,butnottosame decline alongsidetheUSmarketas nadian realestatemarketwilllikely wave bottomisset. will onlybefinalizedwhenthefourth- Based onthisinformation,theCa- the sameextent. FIGURE 2:CANADIANREALESTATEINVESTMENTTRUST,WEEKLY. FIGURE 1:CANADIANREALESTATEINDEX,WEEKLY. 1 A 2 B i ii C 2 i iii iv 3 v 4 ii 1 5 iii 2 iv ii 1 v a iii b iv tive asitisfallingalongsidetheR investment trust(UN-T)asanalterna- dian $42.39. The R ability andafifth-wavetarget ofCana- wave retracement,witha79% prob- 2 showsthatitisalsotracing afourth- with generalmarketsentiment. Figure of Finance;itisfallingsimply inline announced bytheCanadianMinister not boundbytherecent“TaxonTrusts” index shown. 2 c The realestateinvestmenttrustis 1 v i The wavecountshowsthattheindexisafourth-wavecorrection. ii 2 The marketmaydeclinealongsidetheUSmarket,butnot to EIT

iii is payinga iv 3 EIT 3 v a 4 4 c the fourthwave.ThefallingR price reachesandconfirmsthelowof rise aspricesdrop. 3.91% yieldatthemoment,whichwill sold levels. confirm abuysignalasitreachesover- Definitely agoodinvestmentasthe i ii i ii See www.Traders.com formore. This articlewasfirstpublishedon3/20/2007. iii iv

iii 3 5 ■ v iv 5 3 v July/August 2007 SI w ill

ADVANCEDGET Copyrights 2007 © Technical Analysis, Inc. All rights reserved. July/August 2007 Fibonacci retracement level. to retestthe50%retracement level wouldsetupalowertest,mostlikelyatthe61.8% the bullmarketbeforebouncing significantly.Failuretofindsupportasthemarketmoves FIGURE 2:BIOTECHHOLDRSTRUST, WEEKLY. nology H shouldn’t be the hardest part. hardest the be shouldn’t technical reasons why waiting why reasons technical biotech stocks? There are a few a are There stocks? biotech B in invest to calls with Inundated by DavidPenn Hype? Biotech Buy The SUPPORT&RESISTANCE BusinessWeek As anexample,thisweek’stopstoryin more thanafewrewardscanbefound. cal conditionoftheB speculators. Thefirstwasthetechni- would behelpfulfortradersand in biotechnologystocksthatIthought time, Iwantedtofocusontwothings On Biotech,”June13,2006).Atthe for Working-Money.com(“Betting stocks backinthesummerof2006 ‘bets’ toconsider.” not, we’regoingtogiveyoumore my eye—“more”asin,“‘Fearless’or stead, itwasthe“more”thatcaught oft-richly valuedbiotechstocks.In- obviousness ofriskwheninvestingin headline, whichonlyunderscoresthe to the“fearless”componentofthat tention shouldbedirectednotsomuch Biotech BetsForTheFearless.”At- I lastwroteaboutbiotechnology Tradable: iotechnology hasbeenasector have targetedasonewhere in whichafewintrepidtraders OLDRS BBH is headlined,“More

(Figure 1).Thesec- BH , orbiotech- The correctioninBBHhadretraced 50%of divergence intheM late January,whenaclearnegative the B group waslimited.Shortlythereafter, warned investorsthattheupsideinthis too muchtosaythattheB acted (Figure2).Infact,itwouldbe in storethanthecurrentdiphasex- tion —perhapsonethatsawtheB provide support,thenadeepercorrec- indeed. However,ifthoselowsdonot ing biotechswouldbeastrongone provide support,thenthecaseforbuy- in thespringof2007. approaching amake-or-breakpoint make a61.8%Fibonacciretracement stocks collectedintheB well enoughforthecohortofbiotech through March. form duringtheperiodofJuly stocks haveatendencytooutper- Almanac the Hirschesandtheir tumn of2005.Theseasonality—per term bottomafterpeakingintheau- looked tobemakingatleastashort- tion wasoneinwhichthegroup nology stocks.Thetechnicalcondi- ond wastheseasonalityofbiotech- the B January 2006peaks)suggeststhat chart (betweentheOctober2005and correction appearedontheweekly vergence thatanticipatedthe2007 area. Thefactthatthenegativedi- to hold,providingsupportinthe170 of thesummer2006willcontinue about 175bymid-March. If thelowsfromsummerof2006 This approachwouldhaveworked The questioniswhetherthelows BH BH

slipped fromjustunder200to

might havemorecorrection

— suggestedthatbiotech ACD Stock Traders BH

histogram

up until BH

BH is Penn, David[2006].“BettingOn Hirsch, Yale;JeffreyHirsch;andthe S onlookers shouldexpect. is somethingthatbiotechinvestorsand retracement hascompletedthusfar— rather thanthemoremild50% of theadvancefrom2004tolate2005 correction inthefirstquarterof2007. gram betweenBBH’speaksinOctober2006andJanuary2007anticipatedthesharp FIGURE 1:BIOTECHHOLDRSTRUST,WEEKLY. UGGESTED Biotech,” Wiley &Sons. Trader’s Almanac2007 Hirsch Organization[2006]. June 13. Ocean RacingBoatnear NYC! See www.Traders.comformore. This articlewasfirstpublishedon4/3/2007. hyperinvesting.net Risk ControlInstruction FX/Futures Tradingand For moreinformation visittheadindexat Working-Money.com

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PROPHET FINANCIAL Copyrights 2007 © Technical Analysis, Inc. All rights reserved. selloff at the end of February. of end the at selloff investing in tech stocks after the after stocks tech in investing investors are cautious about cautious are investors money intothe market.Nonetheless, that thepublicisnotputting fresh tive streakhasbeenprinted, indicate days, althoughaneight-day consecu- volatility. Smalldailyranges onup seen arecoverycharacterized bylow volatility. these marketsmightgeneratehigh A changeofriskassessmentabout mature andarethereforespeculative. overextended theirgains;theyarenot weak ringofthechain.Theyhave but emergingmarketsrepresentthe with statisticsofsimilarpastevents, provided goodreturnsinaccordance month inMarch2007. what couldhappen,thenagainlast May 2006lastyearthefirstsignsof are usuallyfastandpainful.Wesawin not findsmoothsolutions.Adjustments ture develop. markets forconsumersandinfrastruc- countries willfindbenefitsasnew actors ontheglobalscene.Thewestern new countriesandareasasimportant process hasbegunthatwillproject US dollarcangenerateinflation.A economy isdifficulttosay,andaweak need tocontrolinflationandaslowing respect tointerestratesbetweenthe should positionhim-orherselfwith to growatafastpace.Howtrader the globaleconomy,whichcontinues ing thatmuchofanegativeimpacton The USsituation,however,isnothav- economy maybeworsethanexpected. prices stillhigh,theeffecton spending isgettinglower,andwithoil US economyisnotyetclear.Capital the impactofhousingcrisison have recoveredmostofthelosses. has notoccurredsofar,asmarkets tinuation tothedownside.Clearly,this nese market,Iwasexpectingacon- balance volume indicate that indicate volume balance MONEYFLOWINDEX A on- the and flow money The by PaoloPezzutti Phase A Distribution Te page 36¥Traders Technically, aftertheselloff,wehave Currently, buyingtheselloffhas However, currentimbalancescan- From thefundamentalsperspective, Tradable: ch fter theMarchsellofffollow shakeup initiatedbytheChi- ing theone-daymarket Stocks And ESNQ .com of Februaryselloff. FIGURE 2:EMININASDAQ,DAILY. FIGURE 1:EMINIS&P,DAILY.Themoneyflowdisplaysanegativedivergence,whichisnotsignaledbytheOBV. flows. by thesumofallspecifiedmoney specified numberofbarsanddivided money flowsarethensummedovera and itsaverageprice.Thepositive multiplying thecurrentbar’svolume bar’s averageprice.Itiscalculatedby average priceexceedstheprevious flow occurswhenthecurrentbar’s high, andlowofabar.Positivemoney using theaverageofopen,close, “average price,”whichiscalculated The moneyflowisbuiltaroundthe ity ofanongoingdistributionphase. indicator (pink)toassessthepossibil- S&P dailychart.Iusedthemoneyflow not havegreatpotentialtotheupside. Actually, itseemsthatthemarketdoes top. Couldthisbeadistributionphase? prices havegoneupveryclosetothe Money flow= Sum ofallmoneyflow 1 The formulais: In Figure1,youcanseetheemini 00 *Sumofpositivemoneyflow / Both indicatorsshownegativedivergences.Investorshavebeenmoreprudentaftertheend The O coincidence withthelastpivothigh. displays ashort-termdivergencein the markettrendisabouttochange. indicator occurs,itcanbeasignalthat gence betweenpriceactionandthe track thepriceaction.Whenadiver- and upvolume. O volume andassignedapositivevalue. before, thevolumeisconsideredup close higherthantheyclosedtheday signed anegativevalue.Whenprices is considereddownvolumeandas- they closedthedaybefore,volume When pricescloseloweronedaythan between upvolumeanddownvolume. the on-balancevolume(O the figure).TheO ongoing. to assessthatadistribution phaseis not highlightingsignificant elements rising trendline.Overall,the S&Pis BV At thedailylevelmoneyflow In ahealthytrend,theindicators In thesamechartIhaveinsertedalso

is arunningtotalofdownvolume BV movedcomfortablyalonga BV

distinguishes BV ) (bluein where youcanseetheeminiN phase. could openanegativelonger-term cerns fromemergingmarkets, which by weakfundamentalswithsomecon- see themarketstrappedtoupside near future.Infact,forthemomentI downside andaretestofthelowsin from herewithvolatilitymoretothe but ratherasidewaysmovetodevelop would notexpectexcessiveweakness, resilient. Thatiswhy,insummary,I playing thatthismarketuptrendisvery retracement hasbeensignificant,dis- the downside.However, that priceswouldcontinuetomove side printedonFebruary27indicated money intotechnologystocks. been moreprudentinputtingtheir month. Investorsaftertheselloffhave divergences developedduringthelast Here, bothindicatorsshownegative The situationisdifferentinFigure2, The long-rangecandletothedown-

■ See www.Traders.com formore. This articlewasfirstpublishedon4/16/2007. July/August 2007 ASDAQ . TRADESTATION Copyrights 2007 © Technical Analysis, Inc. All rights reserved. July/August 2007 is greatlyenhanced bythepositivedivergence. a lowerlowinpricewasrecorded. Thelikelihoodofsugarfindingabottomattheselevels have beengrowingsinceDecember, whenthefirsthigherlowinhistogramagainst FIGURE 2:SUGAR,JULYFUTURES, DAILY. August: sugar pricesstillinfreefall,Iwrote metrical triangleinMay2006.With broken downseverelyfromasym- August 25,2006),thecommodityhad time? W spring- in bottom a find sugar Will by DavidPenn Sugar Suffering Of The Sweet SEASONALTRADING port tothefallingmarket. relatively effectiveinprovidingsup- 61.8% retracementlevel—proved see thatthis11-centlevel—andthe Some ofthesidewaysactioninsugar Referring backtothechart,wecan Tradable: the November2005correctionlows. and potentialsupportintheformof take sugarclosertothe11-centlevel, 61.8% retracement,whichwould finishing pointmightbeaFibonacci February 2004lows.Alikely than 50%ofitsrallyfromthe sugar hasretracedjustabitmore mission accomplished.Atthispoint, projection insugarisconcerned, ... Asfarastheminimumdownside hen Ilastwroteaboutsugar tage (“TheSugarTriangle,” for Traders.comAdvan- SB,SBK7 Positive divergencesintheMACD histogram lower lowonMarch15wasexceeded versus Marchlow).Eventhoughthe tom wasdeveloping(Februarylow gued thatamonth-to-month2Bbot- few monthsof2007,itcouldbear- as themarketmovedlowerinfirst 2006 andbecamemorepronounced have beenineffectsinceDecember the downside. slow-motion lossofmomentumto (M average convergence/divergence positive divergencesinthemoving This slideischaracterizedalsobythe months slidingfrom12centsto10. July contractspentseveralagonizing futures sincelateSeptember,asthe shows thelongslowslideinsugar comes allthemoreapparent.Figure2 ing bearishnesssurroundingsugarbe- such astheJulycontract,prevail- near-month sugarfuturescontracts advance fromthe2004lows. retraced approximately61.8%ofthe sugar (basiscontinuousfutures)has eral months.Sofar,thecorrectionin lower sugarpricesoverthepastsev- of traderswho’veseennothingbut despondency) todeveloponthepart time foracertaincomplacency(or should bealong-enoughperiodof market haslastedatleastayear,which also bepointedoutthatsugar’sbear toward the9Ð8centarea.Itshould to appearassugarfuturesmovedown significant amountofsupportbegins to thedownside.AsFigure1shows,a be attributedtoawaningmomentum futures latein2006andinto2007may Beyond thedivergences,which When youlookmorecloselyatthe ACD ) histogram,whichsuggesta in Aprilduetotheintricaciesof Scott Barrie,sugartypicallygetshit Trader’s Almanac2007,editedby According tothe tom atimelyoneforsugartraders. siderations thatmakeaspringbot- initial low(onFebruary7). level, whichrepresentsthehighof have tobounceabovethe10.4-cent bottom toberealized,Julysugarwould to thedownside.Inorderforthat2B as havingsignificantfollow-through that wouldreadilyqualifythesession intraday efforttomovepriceslower) above theopenandfoughtoffan part ofthesellers(themarketclosed show thesortofdeterminationon the followingday,March16didnot how sugarhasfoundsupportatandaroundthe61.8%retracementlevel. in 2006andcontinuedthroughouttheyearascommodityfellmorethan40%.Note FIGURE 1:SUGAR,CONTINUOUSFUTURES, WEEKLY. There arealsosomeseasonalcon- For moreinformation visittheadindexat Software that Works as Looking forCharting Hard asYou Do? 1-800-359-1121 aspenres.com Commodity sugar’s multimonthdecline. when tryingtogametheendof gies thattradersshouldkeepinmind in Mayisstrong—oneofstrate- especially whenpriceappreciation and ridingthatpositionintoJune— sugar inMayafterthe“Aprilbreaks” global harvestingschedule.Buying Barrie, ScottW.,andJeffreyA.Hirsch, S Penn, David[2006].“TheSugarTri- UGGESTED Almanac 2007, eds. [2007]. August 25. angle,” Traders.comAdvantage, The bearmarketinsugarbeganearly Traders.com/reader See www.Traders.comformore. This articlewasfirstpublishedon3/16/2007. Traders

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PROPHET FINANCIAL Copyrights 2007 © Technical Analysis, Inc. All rights reserved. has providedeffective resistancetoralliesin cocoaforthepastthreeyears. FIGURE 2:COCOA,CONTINUOUSFUTURES, WEEKLY. page 38¥Traders M trendlines, movingaverages)andthe support (thatis,pastpricesupport, stances whenamarketpullsbackto up swingtradesbylookingforin- (M average convergence/divergence alone. reward whenviewedfromthechart that mightseemtohaveapoorrisk/ a tradertopursueorabandontrade perspective thatcanmakeiteasierfor sideways consolidationintothesortof help putabullmarket,bearor term orlong.Seasonaltendenciescan to anyonelookingtradethem,short the commoditiescanbeagreatbenefit an awarenessofseasonaltendenciesin commodities, itcannotbedeniedthat to ramp higher into March. into higher ramp to in October, cocoa futures continue futures cocoa October, in W bottom seasonal a in putting After by DavidPenn Offensive Cocoa’s Spring SEASONALTRADING number ofopportunitiestomakethis six monthsinJulycocoa,therewerea M gram,” PartsIandII,formoreonthe Money articles,“TradingtheHisto- or M-m-Mpattern(seemyWorking ACD ACD Here’s anexample.Themoving Tradable: ACD H). Lookingbackoverthepast histogram makeseitheraP-p-P ) histogramcanbeusedtoset hile thereareanumberof that workverywellwith swing tradingapproaches CC,CCN7 .com moving average(E pulled backtothe50-dayexponential out anotherpotentialturningpoint,in this intotheirplanning?Barriepoints in November. monthly performancesince1987than cocoa shownahigherdollarperton powerful one.OnlyinJanuaryhas rally fromtheOctoberlowscanbea vest time.Barriealsosuggeststhatthe tween mid-cropandmain-crop”har- — particularlyJulywhichisa“be- shows strengthintothesummermonths season. Themarketforcocoaoften book Barrie’s bottom inOctober,accordingtoScott cal trends.Thecommoditytendsto seasonal turningpointsdrawnear. expectations aspotentiallysignificant can helpatraderadjusthisorher be headedandwhen(Figure2).This get somesenseofwherecocoamight looking atlong-termcharts—wecan of theseasonalfactorsincocoa—and trades incocoa?Byconsideringsome ing butthechartandindicators. See Figure1. profitable tradecouldhavebeensold. 20 intowhichatleastaportionofthe enjoyed agapupbreakoutonMarch completed), acocoatraderwouldhave session whentheP-p-Ppatternwas and 1773(thelowoftheMarch8th tween 1780(a$500percontractstop) 1825.50 andastopsomewherebe- bounced higher.Withanentryatabout occurred onMarch8afterC sort oftrade.Themostrecentone How canthosetradingcocoafactor Cocoa hassomeinterestinghistori- Will therebefurtherlong-sideswing No sentiment,noseasonals—noth- The rangebetween1700and 1800 , whichisthebeginningofharvest Commodity Trader’sHand- MA ) andthen CN 7 had Figure 3. tive divergencesbegintoappear.See possibility ofareversalshouldnega- long cocoashouldbewaryforthe mid-October 2006,traderswhoare strength incocoasincebottoming ber doescocoafareworse).Giventhe sell off(onlyinSeptemberandOcto- since 1987)hasshownatendencyto April, whencocoahistorically(atleast histogram and the stochasticascocoapushes towardnewhighs. FIGURE 3:COCOA,JULYFUTURES, DAILY. completed. Notealsotheincreaseinvolume. the stop-losslevel—equaltolowofsessionduringwhichP-p-Pwas early MarchsetsupaswingbuyinJulycocoa.Thebluehorizontallinerepresents FIGURE 1:COCOA,JULYFUTURES,DAILY.TheP-p-PpatternintheMACDhistogram See www.Traders.comformore. This articlewasfirstpublishedon3/20/2007.

■ Negative divergencesbuildin both theMACD July/August 2007

PROPHET FINANCIAL Copyrights 2007 © Technical Analysis, Inc. All rights reserved. picture. average, butthe previoushighpivotmayreact likeadictator. FIGURE 2:$BKX,WEEKLY. the resistance might change the change might resistance the conditions on charts are positive, are charts on conditions resistance. So although technical although So resistance. support but under previous high previous under but support TECHNICALANALYSIS July/August 2007 $B world clueswhenduringlastmonth, formed resistanceaddedwithnegative additional 200-dayMA.Thenewly the 50-daymovingaverageandan bullish rally.Itviolatedthesupportof losing somegainsduringtheprevious then, theindexhascorrectedsharply, of $121onMarch20,2007.Since this rally,thebankindexmadeahigh 2004. Aftergainingabout20pointson T average moving on is $BKX by ChaitaliMohile Under Test Bank Index tance, theindexretracedtoitsprevi- On reachingthe50-dayMAresis- upside moveintheindex. conveying apossible bullish indication, A doublebottomisa Tradable: KX failedtoperform. rally frommid-December dex ($B he PhiladelphiaBankingIn- $BKX KX ) beganitsbullish $BKX hasastrongbullishsupport of50-daymoving signals for$B ing uptrend. ish indication,indicatingadevelop- crossover frombelow.Thisisabull- (14) slipsto25from30,with+DI directional movementindex(A ish roomfortheindex.Theaverage chastic is65,indicatingplentyofbull- moving average.Currently,thesto- under theresistanceof50-day to moveabove80asthepricewas in thebankindex. result ineitheraconsolidationordip the bullishrally,sothishighmay high isamajorresistancebyitselfin its previoushighof117.The dex traveledfivepoints,from112to the index.Accordingly,bankin- conveying apossibleupsidemovein double bottomisabullishindication, ing adoublebottom(Figure1).A ous lowpivotandconsolidated,form- So bothindicatorshighlightpositive The stochasticoscillatorhasfailed KX

to moveaheadofits DX ) to consolidation. signal byturningabove20.TheA stochastic at37.11isgivingabullish touch itsprevioushighat117.5.The during lastweekmadetheindex moving average.Thebullishrun on perfectsupportofthe50-day Figure 2showsthattheindexstands index correctingfrom121to112. from the80levelto20,with get fromtheweeklychart(Figure2). rally. Nowlet’sfindwhatsignalswe vidual stockmightseeagoodbullish the bankindexmovesahead,itsindi- resistance line.Withthisindication,if FIGURE 1:$BKX,DAILY. (14) hasmarginallymovedbelow The stochastic(10,7,3)dipped For moreinformation visittheadindexat Searching forthe Best Charting &Analytics? Software Solutionfor The bankindexfacesprevioushighresistancethatcanlead 1-800-359-1121 aspenres.com DX violating thisresistanceby$B bullish rallyinbankingstockson frame. Tradersmightseeanattractive its 50-dayMAsupportinthedaily ous highmightmaketheindexdipto continue itsbullishrally.Theprevi- A uptrend willregainitsstrengthifthe solidation inanuptrend.Astrong 20, indicatingthepossibilityofcon- weekly charts,the$B DX Considering boththedailyand moves25. Traders.com/reader See www.Traders.comformore. This articlewasfirstpublishedon4/24/2007. Traders KX .com

is likelyto ¥ page39 KX . ■

STOCKCHARTS.COM Copyrights 2007 © Technical Analysis, Inc. All rights reserved. April advancedoesnotseemtohave transports inApril.WhiletheMarchÐ ing morelikeatopthantheDow sive (Figure1). highs sofarhasbeenlessthanimpres- ports’ movebeyonditsFebruary2007 rier tothe13,000level—trans- ary highs—thebiggesttechnicalbar- marched stronglybeyondtheFebru- mid-April. Forwhiletheindustrials cently madeanew,all-timehighin the Dowtransports,whichalsore- level, lessattentionhasbeenpaidon industrials? confirm the new highs in the Dow the in highs new the confirm REVERSAL W to failing transports Dow the Are by DavidPenn The Top Hesitate At T page 40¥Traders ransports It ishardtoimagineamarketlook- T Tradable: the winningteam in bothstocksandcommodities,canbeutilized in daytradingaswell aslongtermtradingsuccessfully. J The Profitunity Trading Group offersover 40years oftradingexperiencetoourclients.Our methodologyworks T estimonials were senttoProfitunityTrading Groupfromactualinvestors tradingtheProfitunityTrading Groupsystem.There isariskoflossintradingcommodities. AKE • Designed forCommodities&Stocks • Free Indicators Included inCourse • Psychological Assistance • Free Ongoing Technical Support • 2-Day Private Tutorials • NEW 8-Week Home Study Course We als’ assaultonthe13,000 paid totheDowindustri- ith alltheattentionbeing The holistic approach to trading and investing. and trading to approach holistic The $TRAN offerawiderangeofservices: .com C

and takecontrolofyour financialfuture. No onewilltakecare of yourmoneybetterthan ONTROL staying powerofthe$T lators concernedaboutthenear-term the Februaryhighsshouldmakespecu- through totheupsideafterbreaking transports’ hesitationtoshowfollow- some significancehasdeveloped,the that isoftenaclearsigntopof gence/divergence (M gence inthemovingaverageconver- resulted inthesortofnegativediver- was reached. been stoppedoutinthenextsessionasanewintradayhigh based onthe2Bcriteriawouldhavebeenfilled,onlyto transports (usingtheexchange-tradedfundIYTasaproxy) the breakoutaboveFebruaryhighs.Anefforttoshort month ofAprilfindstheDowtransportsstrugglingtosustain FIGURE 1:DOWJONESTRANSPORTATIONAVERAGE,DAILY.

V OF isit usat:WWW.PROFITUNITY.COM ACD RAN ) histogram Y . OUR advance was.Watchingtoseewhether collapse everybitasverticalthe gains, ratherthanbreakdownina consolidating theirswiftlygotten the transportswillmovesideways, side, thereisastrongpossibilitythat shadows oncandlestickstothedown- to theupsidearematchedbylong where longshadowsoncandlesticks Given thetradinginlateApril, F ov open contracts. In lessthansixmonthsIhave As oftodayIhave over $50,000incashand " Istartedoutwith$23,500inmyaccount. We Or email:[email protected] For moreinformation call:760-436-8054 rdoubledmyaccount"-D. Todd er The • CQG I M INANCIAL don’t justteach... We trade! ndicators Compatiblewith: etaStock PROPHET FINANCIAL and the5100levelascriticalsupport. setup), traderscanfocusonthe5250levelaskeyresistance the trendlinebreakandsubsequentbounce(a1-2-3reversal then temporarilyrallyabovetheirApriltrendline.Basedon 2B topiscreatedasthetransportsbreakdownbelowand FIGURE 2:DOWJONESTRANSPORTATIONAVERAGE,TWO-HOUR. ™ •eSignal ™ • TradeStation in thecards. particularly deepMarch“cup”—is tion —perhapsthe“handle”to likely lettradersknowifaconsolida- 5250Ð5100 range(seeFigure2)will the transportsbreakfreefrom ™ F • See www.Traders.comformore. This articlewasfirstpublishedon4/25/2007. UTURE ■ ™ July/August 2007 you! oin ! A

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. higher. theless suggest going lower before lower going suggest theless July/August 2007 600 levellooks likeonelikelysourceofsupport, shouldgoldcontinueto decline. is reflectiveofawave2decline thatshouldfindsupportbeforereaching575.The wave movementtotheupside. Thecurrentsoftnessingoldpricesthisscenario gests thatthegoldmarketbottomed inOctober2006andhasjustcompletedafive- FIGURE 2:GOLD,CONTINUOUSFUTURES, WEEKLY. the kidssay.Tothat,Isay:Check gold bullsareduefortheirpropers,as as aninvestmentforsolongthatnow entitlement, asifgoldhasbeenknocked gold proponentsIgetastrangesenseof and muchofthetimewhenIthink greed thanbullsinanyothermarket, bull marketingoldislikelytoresume. in theintermediatetolongerterm, should beweakerintheshortterm,but two takesisthatbothindicategold over. Whatisinterestingaboutthese ate-term basis,thedownsideforgoldis ure 2),suggeststhatonanintermedi- take, theOctoberbottomthesis(Fig- of Elliottwavecorrection.Thesecond through afourth-wave,double-3type gold marketthatisonlyhalfway correction thesis(Figure1),pointstoa on thegoldmarket.Thefirsttake, P never- gold on theses Competing by DavidPenn Wa ELLIOTTWAVE Gold bullsarenolessimperviousto Tradable: ving The Gold ving The developing twodifferenttakes on preciousmetals,Iendedup reparing foraconferencecall GC,GCM7 METALS &ENERGY METALS &ENERGY through itscorrection.Withthex-wave then goldisalittlemorethanhalfway classic, and A.J.FrostintheirElliottwave test asmentionedbyRobertPrechter tion alsoseemstopassthe“rightlook” low pointoftheA-wave.Thiscorrec- the C-wavedoesnotmovebeyond least 61.8%oftheA-wave,andtwo, reasons. One,theB-waveretracesat pattern isreminiscentofaflatfortwo initial movedown.Tomyeyes,this ing backdowntotestthelowsof 61.8% ofthatcorrectionbeforemov- corrected, thenretracedapproximately advance. Sincethatpeak,goldfutures the peakinMay2006asawave3 It takestherallyfrom2001lowsto encing rightnow. what kindofcorrectiongoldisexperi- a correction,thequestionremainsjust 2006. nearly 723bytheearlysummerof 425 and450duringthecorrectionto went onatear,rallyingfrombetween sideways correctionin2004Ð05,gold almost totheweek.Andafteralargely 2001 —thebeginningofBushera ket sincetestingthebottominearly for. Goldhasbeeninasolidbullmar- then thatisrespectnotworthwaiting granted goldtherespectitdeserves, chart. Ifthereisanyonewhohasnot If thecorrectionthesisiscorrect, Figure 1showsthecorrectionthesis. So whilegoldbullsshouldwelcome The Octoberbottomthesissug- The ElliottWavePrinciple. thesis) lastedforaboutfivemonths.If correction ingold(perthe would meanatestofthe575level. possibility ofadoublethree,which the correctionthesisislimitedto rather thanadoublethree.Butfornow, market —willdevelopa“triplethree” the psychologyofthoseingold possibility thatgold—dependingon triangle, orazigzag.Andthereisthe This “three”couldbeanotherflat,a develop another“three”correction. complete, allthatremainsisforgoldto wave betweenthefirst“three”andsecondtocome. have takentheformofaflat.Thewavelabeled“x”representedintermediary futures areinafourth-wave,double-threecorrection.Thefirst“three”appearsto FIGURE 1:GOLD,CONTINUOUSFUTURES,WEEKLY. Interestingly, theflatportionof Software intheIndustry? For moreinformation, visittheS&Cadindexat Ultimate Analytics T rying toFindthe 1-800-359-1121 aspenres.com Almanac Hirsches intheir according totheresearch ofthe ber, sonally fromJulythroughSeptem- stocks areknowntooutperformsea- interesting isthatgoldandsilver 2007. W wave bottomsometimeinsummer in February),thenwegetafourth- intermediary x-wave(whichtopped that fivemonthstotheendof the sameamountoftime,andweadd the secondthreelastsapproximately Just somethingtokeepinmindas My correctionthesispositsthatgold hat makesthisparticularly Traders.com/reader . Traders Stock Traders’ .com ¥ page41

PROPHET FINANCIAL Copyrights 2007 © Technical Analysis, Inc. All rights reserved. March bounce in June gold. June in bounce March T the of tale the tell Divergences by DavidPenn Correction The Gold REVERSAL correction enroutetofinishingawave bark uponathree-segmented,A-B-C 2007. Assuch,themarketshouldem- bottom werecompletedinFebruary that thefirstfivewavesupfrom October bottomthesis,thenitislikely believe thatifyousubscribetothe on theMay2006highs,makesme rally toppedoutjustasitwasclosingin October bottom,andnotingthatthe the moreprobableinterpretation. trend upwardincreasinglyappearsas of anOctoberbottomandanewbull view itasthelatter,thenpossibility seems morelikely.However,ifyou the former,thencorrectionthesis mented one(Figure3).Ifyouviewitas three-segmented affairorafive-seg- rally fromtheOctoberbottomasa The differenceiswhetheryouviewthe tion fromMay2006toOctober2006. have experiencedaflatstylecorrec- made awave3topinMay2006,andto Both takesseethemarketashaving to thecorrectionthesisinmanyways. the yearplaysout. decline. (SeeFigure1.) early MarchportionofJune gold’s coincides withgapresistance fromthe Note thatthisretracement level also key Fibonacciretracementat38.2%. topped justasitwastestingtheother current correctionappearstohave early JanuarytolateFebruary.Andthe retracement ofgold’sadvancefrom after breachingthe61.8%Fibonacci The correctionitselfbouncedshortly the limitsofFibonacciretracement. room torun. suggests thatthecorrectioningoldhas the “lowerbeforehigher”casethat Elliott waveÐrelated,theydosupport Gold.” Whilethosethoughtsaren’t article onthesubject,“WavingThe page 42¥Traders Looking closelyattherallyfrom The Octoberbottomthesisissimilar The intradaylinechartofJune gold June goldhasbeenprettyfaithfulto Tradable: want tocramintomyearlier thoughts ongoldthatIdidn’t here wereafewadditional GCM7 .com consequence ofthenegative M and blue)remainsapossibility, andthe vance. Movingaveragesupport(inred gences thatthreatentoendthead- lengthy andgrowingnegativediver- gram thatledtothebounce,butalso that issharplydownward.Yet given ways tradingratherthanmovement histogram divergencescould beside- vergence/divergence (M divergence inthemovingaveragecon- in Figure2showsnotonlythepositive retracement level,38.2%. appears tohaverunintoresistanceatanotherFibonacci rally fromtheJanuarylows.ThebouncethatbeganinMarch March correctioninJunegoldretracedjustover61.8%ofthe FIGURE 1:GOLD,JUNEFUTURES,DAILY. Frost, A.J.,andRobertPrechter[1985]. S thesis. rooting for)focustothecorrection keeping, dependingthethesisyouare be onegoodreasonformoving(or closing basis.Ifitdid,thenthatwould the October2006lowsonaweekly should thewave2correctiontakeout ing totheOctoberbottomthesis, in thecardsovernextfewweeks. retracement levelnear600,shouldbe ment lower,perhapstestingthe61.8% 1 —meaningthatcontinuedmove- significantly retracethepreviouswave 1. Asawave2,thiscorrectionshould 2 thatwouldcorrectthepreviouswave Hirsch, Yale,Jeffreyandthe UGGESTED Elliott WavePrinciple, Under nocircumstances,accord- & Sons. Trader’s Almanac2007,JohnWiley Hirsch Organization[2006]. sics Library.

■ See www.Traders.comformore. This articlewasfirstpublishedon3/8/2007.

READING ACD

New Clas- ) histo- Stock ACD The lateFebruary/early A-B-C pattern. March 2007bounceappearsatthispointtobethesecondB-waveofacorrective October 2006bottomasseenthroughthelensofthesis.The FIGURE 3:GOLD,JUNE2007FUTURES,DAILY.Here’sthefive-waveadvancefrom highs andbeyond. lasting movehighertothe February one —thatmightproduceamore correction —asopposedtoaV-shaped hoping foramorelastingmeaningful today, traderscouldbeforgivenfor sharpness oftheearlyMarchbounce from thelateFebruaryhigh,and the sharpnessofinitialcorrection See www.Traders.comformore. This articlewasfirstpublishedon3/9/2007.

■ be corrected. indicator, increasingthelikelihoodthatmovehigherwill accompanied byagrowingnegativedivergenceinthesame decline ofJunegold.Buttherallythatfollowedhasbeen gence intheMACDhistogramsignaledakeylow FIGURE 2:GOLD,JUNEFUTURES,15-MINUTE. July/August 2007 A positivediver-

PROPHET FINANCIAL Copyrights 2007 © Technical Analysis, Inc. All rights reserved. July/August 2007 T consolidation price of worth months’ Three by DavidPenn Retreats AtResistance J accompanied byanegativedivergenceintheMACDhistogram. oil’s initialrallyofftheJanuary2007lows.Notehowthatfailureatresistanceis ber throughtheendofDecemberformsalayerresistancethatblockscrude FIGURE 1:CRUDEOIL,JUNEFUTURES,DAILY. higher in early March. early in higher prove a barrier to crude oil’s attempt to move to attempt oil’s crude to barrier a prove SUPPORT&RESISTANCE of 58(Figure 2). Althoughnotshown,it isworth and the61.8%Fibonacciretracement leveljustsouth 38.2% Fibonacciretracement leveljustnorthof60 crude willfindsupportsomewhere betweenthe be relativelymild.Thereis thepotentialthatJune likely, thereisagoodchance thatanycorrectionwill histogram meansthatacorrectionofsomevarietyis moving averageconvergence/divergence(Macd) sideways? Whilethenegativedivergencein days ofMarchbeforeonceagainretreating. dation range,reachingashigh64inthefirstfew crude managedtopenetratedeeperintotheconsoli- second halfofFebruary.Thistime,June below 60beforemakinganotherpushhigherinthe September toDecember.Themarketpulledback lower boundaryoftheconsolidationrangefrom then failedshortof63.Thatlevelrepresentsthe for resistance.JunecruderalliedintoearlyFebruary, in manymonths. being —thefirstsignificantrallyattemptincrudeoil consolidation thathasblocked—atleastforthetime from mid-SeptembertolateDecember.Anditisthis consolidation thatdevelopedbetween$68and$63 to aJanuary2007lowsouthof$54.SeeFigure1. June crudefallfromitsAugust2006highabove$80 une CrudeRally Will thecorrectionbesharplylower—ormore Arguably, thisconsolidationrangewastwicetested The onlyinterruptioninthisbearmarketwasa Tradable: market eversince.Thisbearhasseen late summerof2006andhasbeeninabear he Junecrudeoilcontracttoppedbackinthe CLM7 The consolidationfrommid-Septem- ment whencrudeoilfinallybottoms.Onbalance, term, anymovelowerwouldonlyhastenthemo- While lowercrudeoilpricesseemlikelyinthenear crude hasbeeninabearmarketsinceAugust2006. before runningintoresistance. 38.2% ofthedeclinefromAugust2006peak noting thattherallyoffJanuarylowsretraced In addition,itisworthrememberingthatJune Charting &Technical Analysis [email protected] Software... AspenGraphics Look totheLeaderin 1-800-359-1121 For moreinformation visittheadindexat Free Trial! the highsoflateJanuarythatcouldstemanydecline. crude moveslower,thereissupportatthe61.8%retracementlevelnear58from January 2007lowswouldfindJunecrudeoiltestingtheofFebruary.If FIGURE 2:CRUDEOIL,JUNEFUTURES,DAILY. higher crudeoilpricescomesummer. would goalongwaytowardpavingthefor conditioning” season.Aspringbottomincrudeoil late springmovingintothesummer“drivingandair crude oiltendstohavefavorableseasonalityinthe Traders.com/reader A 50%correctionintherallyoff See www.Traders.comformore. This articlewasfirstpublishedon3/16/2007. Traders .com ■ ¥ page43

PROPHET FINANCIAL Copyrights 2007 © Technical Analysis, Inc. All rights reserved. could be difficult to come by. come to difficult be could back totheOctoberÐDecemberhighs. bearish, butcruderalliedalltheway 64. Theconsolidationbreakdownwas with supportat58andresistance formed alargeconsolidationlastyear December 2006highs(Figure1).Oil moving averageandtheOctoberÐ resistance zonefromthe200-day resistance zone and further gains further and zone resistance ov the advance has reached a reached has advance the short-term becoming quickly is currently enjoying a nice rally, but rally, nice a enjoying currently crude strength, tremendous shows MOVINGAVERAGES 80 to51was no ordinarydecline,as term trend(Figure1).Thedrop from setting thebearishtonefor the long- decline inthesecondhalf of 2006, W W by ArthurHill Resistance Zone Oil HitsA CHANNELLINES O oil in surge recent the though Even by ArthurHill Into Resistance Crude Charges tance zone. tance page 44¥Traders remains above80. overbought aslongit is bothbullishand The stochasticoscillator est Texas Intermediate Crude is Crude Intermediate Texas est erbought and entering a resis- a entering and erbought Tradable: Tradable: Crude (W West TexasIntermediate n thedailychart(Figure1), est TexasIntermediate support at68withasharp Crude (W $WTIC $WTIC .com TIC TIC ) isenteringa ) brokekey for W below 50wouldbeshort-termbearish would showsomeweakness,andadip remains above80.Adipbelow80 bullish andoverboughtaslongit short timeframe.Theindicatorisboth prices havemovedfarandfastina sarily bearish;itjustwarnsbullsthat became overbought.Thisisnotneces- chastic oscillatormovedabove80and October, November,andDecember. W throughout themultiyearadvance. moving averageofferedsupport 200-day movingaverage.The40-week days) andisessentiallyequaltothe (40 weeksmultipliedby5days=200 age. Thiscoversthesametimeframe I overlaidthe40-weekmovingaver- stead ofthe200-daymovingaverage, for someperspective(Figure2).In- bearish below50. above 50,andmomentumisgenerally bias. Momentumisgenerallybullish separates abullishbiasfrombearish for thestochasticoscillator,andthis tance and/orapullbacksoon. few weeks,andIwouldexpectresis- to thismovingaverageoverthelast becomes resistance.W of 2006,andthismovingaveragenow age withasharpdeclineinthesummer because thisareastymiedW tance around64isjustasimpressive This rallyisimpressive,butresis- tion. W with abounceorconsolida- tion thatcanonlybealleviated to 51createdanoversoldcondi- countertrend rally.Thedecline ish, butIviewthisasa around 60ismedium-termbull- lines). Thechannelbreakout price channel(Figure1,gray early 2007andformedafalling since thefirsthalfof2005. W pected acorrective rallytofizzle, is wherewewouldhaveex- just belowbrokensupport.This prior declineandmetresistance move retraced50%Ð62%ofthe prior decline(80to51).The the advancepalesrelativeto the dailychart(Figure2),but The movelooksimpressiveon with amovebackabove65. In additiontoresistance,thesto- Now let’sturntothelong-termchart The declineextendedinto TIC TIC

TIC returned tolevelsnotseen broke belowthismovingaver- TIC . The50levelisthecenterline See www.Traders.comformore. This articlewasfirstpublishedon3/29/2007.

chose tobounceback TIC

moved back

■ TIC a fallingpricechannel(graylines). sharp declineinthesecondhalf of2006.Thedeclineextendedintoearly2007andformed FIGURE 1:WTIC,WEEKLY.

in zone fromthe200-daymovingaverageandOctoberÐDecember2006highs. FIGURE 1:WTIC,DAILY. in thesummerof2006andthisaveragenowbecomesresistance. FIGURE 2:WTIC,WEEKLY.WTICbrokebelowthismovingaveragewithasharpdecline West TexasIntermediateCrude brokekeysupportat68witha Here, WestTexasIntermediateCrudeisenteringaresistance July/August 2007

TELECHART 2007 STOCKCHARTS.COM Copyrights 2007 © Technical Analysis, Inc. All rights reserved. expect amovebelow51. 51 ontheweeklychart).Iwouldthen tinuation ofthepreviousdecline(80to reverse thisuptrendandcallforacon- trendline andsupportat61.35would A movebelowthelowerchannel reaction below61.35earlierthismonth. formed arisingchannel,andthereis 200-day movingaverages.Themove carried oilbackabovethe50-dayand The advanceoverthelastfewmonths respect thistrendaslongitholds. term trendremainsupandweshould like acorrectiveadvance,themedium- (gray circle). f thing important about the potential the about important thing July/August 2007 I some- saying stocks gold the Are by DavidPenn Resistance Gold Meets SUPPORT&RESISTANCE and W already beenbested byboththecon- 700 level.TheseFebruaryhighs have out therecentFebruaryhighs andthe higher inanattempt,ultimately, totake Here, goldhadbeenmoving steadily in thecontractforJunegold(Figure 1). immediate resistancelevelcanbefound that bearwatching.Thefirst,more futures) bylateApril. more than50points(basiscontinuous 640, goldfuturesmanagedtoclimb higher. Withthecorrectionendingnear began movingsteadily,ifmodestly, put inalowlateFebruary2007and case provedincorrect,asgoldfutures ber 2006,the“lowerbeforehigher” important bottomwascreatedinOcto- 2007). Traders.com Advantage,March8, moving higher(“WavingTheGold,” volved goldmovinglowerbefore to thedownside,bothinstancesin- October 2006,orhadstillmoreroom not youbelievedthatgoldbottomedin late February,Iwrotethatwhetheror or new highs in gold? in highs new or I amalsofocusingontherelative Even thoughthecurrentrallylooks There aretwolevelsofresistance While itmayturnouttobethatan Tradable: out significantpullback.Backin gold’s abilitytomovehigherwith- ’ve beensomewhatskepticalof TIC

stalled thepastfewweeks GC,GCM7,$HUI strength index(R R higher (closing)highinApril,andthe high inApril.W 70 inlateMarchandformedalower of unhedgedgoldstocks,the$H tinuous futurescontractandtheindex en routetonew,all-time,contracthighs. of threeresistancelevelsthatJunegoldwillneedtosurpass FIGURE 1:GOLD,JUNEFUTURES,WEEKLY. W used toconfirmasupportbreakin momentum bearish,andthiscouldbe holds. Abreakbelow50wouldturn remains upaslongsupportat50 (in theR working. Despitewaningmomentum the $H progress oftheseothertwomarkets. If June goldwillbeverymuch tied tothe certain. ButIsuspecttheprogress of highs —thoughthatisbynomeans gold willeventuallysurpassthe2007 ruary 2007highssuggeststhatJune the $H that boththecontinuousfuturesand hurdle seemstodove-tailwiththefact contract isstrugglingtoclearthe700 However, thefactthatJunegold 2006, thenit is likelythatJunegold tures failtomakenewhighs vis-a-vis futures andthe$H highs (Figure2). tance levelintheformofMay2006 an earlier,arguablymorecrucialresis- last fewmonths.TheR in mid-Januaryandhasbeenrisingthe trend change.Theindicatorbottomed SI The progressofcontinuousgold TIC

now hasanegativedivergence .

UI ■ UI See www.Traders.comformore. This articlewasfirstpublishedon4/25/2007. SI

are fightingtomovebeyond and/or continuousgoldfu- ) inApril,theoveralltrend TIC SI UI ) forevidenceofa

vis-à-vis theFeb- actually forgeda SI

moved above UI . The 700levelisone FIGURE 2:WTIC,DAILY. and headingsignificantly lower. of newhighs,possiblyeven reversing gold ismuchmorelikelytofail attests hawkish tonewithregardto inflation, the otherhand,Fedadopts amore move aggressivelytotheupside. If,on super-saturated, thengoldislikelyto economy thatmanythinkisalready interest rates,addingliquiditytoan is clear:IftheFedmovestocutshort- a rate-cuttingone.Thethinkingonthis to movefromarate-raisingposture vinced thattheFederalReserveisabout that investorsarenotcompletelycon- gold stockshashadtodowiththefact argued thatthesidewaysmotionin gold tosetnewhighs.Ithasbeen highs. as itsattempttotakeoutthe2007 will failaswell—andperhapsearly the medium-termtrendremainsup. A greatdealrestsontheabilityof Even thoughthecurrentrallylookslikeacorrectiveadvance, odd pointshigher. in thespringof2006—anall-timehighloomssome40- currently testingthetopofthatrangeforresistance.Thehigh ranging correctionforatleastthreequarters,the$HUIis FIGURE 2:AMEXGOLDBUGSINDEX,WEEKLY.Trappedinawide- upside first. showing alittlefollow-throughtothe taking outnear-termresistanceand make theyellowmetalproveitby fortunes ofgold.Buttradersshould perhaps, addsmorebullishbiastothe to withoutcrashingtheeconomy.This, the Fedcanraiseratesevenifitwants become convincedthatthereisnoway pears asifAmericaneconomistshave Reserve appearstobe.Infact,itap- short rateincreases—thantheFederal — tothepointofopenlytalkingabout are farmoreconcernedaboutinflation all ofthemajoreconomiesworld What isinterestingthatvirtually See www.Traders.comformore. This articlewasfirstpublishedon4/25/2007.

■ Traders .com ¥ page45

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. greenback. eclipsed the possibility of a reversal in the in reversal a of possibility the eclipsed term lows, fears of inflation have completely have inflation of fears lows, term time bouncing back strongly. over thepastdecadeandahalf, thegreenbackhasflirtedwith80level,each FIGURE 1:USDOLLARINDEX,CONTINUOUS FUTURES,MONTHLY. long- of test a toward moves dollar the As by DavidPenn page 46¥Traders early 1990s—specificallyin1991,mid-1992 repeatedly testedasthedollarwasbottomingin mately 120.Beforethe2004low,thislevelhadbeen greenback (basiscontinuousfutures)atapproxi- market inthedollarthatbeganearly2002with 80.48. Thislowcameattheendofaviciousbear toric lows. again movingominouslyclosetosomemajorhis- (basis theUSDollarIndex),greenbackisonce from thatfattedcalf.Currentlytradinginthelow80s we willnothavetowaitmuchlongerseetheblood to be“sacrificed”forthesakeofeconomy,then Happening Nowonitsside—ifthedollarisabout ment —otherthanithastheChurchofWhat’s such astheeuroandyen. the dollar,gold,andkeyinternationalcurrencies tion thatgotmehaulingoutmylong-termchartsof MARKET UPDATE M The nearestofsuchlowsisthelate2004lownear One thingyoucansayabouttheinflationistargu- M The Dollar And Deflation .com economy slippingintoadefla- ing thepossibilityofglobal chart ofgoldandbeginridicul- other commentatorpointtoa aybe itwashearingstillyetan- than forfurther,evenmoreverticalgains. that itmaybeamarketmoreprimedforcorrection of appreciationhasalreadytakenplaceingold,and mistake tonotrealizethatacertainsignificantamount hyperinflationary stratosphere.Butitwouldbea verge ofamovestillhigher,upintothe 850. from theall-timehighinJanuary1980spikenorthof completely retraceditssecularbearmarketdecline highs inthesummerof2006.Infact,goldhasalmost historic lowsinthesummerof1999tonear-historic rallied morethan287%inthesevenyearsfrom chart ofthegoldpricesince2000.Goldhasalready inflation willswallowtheeconomy...andthatisa digits, thatthedollarwillberuined,andhyper- that goldwillcontinuerisingintothequadruple of theinflationistargument,anargumentthatsays as ithaseverbeen. could bearguedthatitisasclosertodeparturetime were tested. 78.43, andinthespringof1995,when1992lows when thegreenbacktechnicallyfoundabottomat as thegoldpricerises.Tobeconcernedabout deflation-skeptics cryout,“Whereisthedeflation?” most frustratingthingsaboutthetopicishearing I’ve writtenaboutdeflationbefore.Andoneofthe W On fourotheroccasions It maybepossibleforthegoldmarkettoon But onethingcontinuestostymiemyappreciation So ifthedollarisgoingtohellinahandbasket,it HAT

IS

DEFLATION financial assets —stocksandbondsofthe late1990s. early 2001signaledanend to thedisinflationthatcharacterizedboomin FIGURE 2:GOLD,CONTINUOUSFUTURES, MONTHLY. ? crisis. Assuch,theideaofhaving“toomuchmoney” a “printingpress”wouldhelpstaveoffdeflationary little money,”theavailabilityofatechnologycalled should theUSeconomyeverfinditselfwith“too “Helicopter” Bernanke’swidelysharednotionthat have heardofFederalReserveBoardchairmanBen How cantherebe“toolittlemoney”?Bynow,most money” chasing“toomany”goodsandservices. considered anexampleoftheopposite:“toolittle and services,thendeflation,atitsmostsimple,canbe tion of“toomuchmoney”chasingfewgoods” deflationary shock. balance —areperfectlylogicalprecursorstoa along withastockmarketthatismovinghigheron fact, itcouldbearguedthatasoaringgoldprice— looks increasinglyliketheN tices, doesnotmakeapersonblindtogoldchartthat probable, outcomeofourcurrenteconomicprac- deflation, toworryaboutdeflationasalikely,ifnot What isdeflation?Ifinflationreferstothesitua- The bottomin1999andretest in ASDAQ July/August 2007

circa 2000.In

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. July/August 2007 bottomed inOctober 2002. in the10-yearTreasurybegan inJune2003,someeightmonthsafterstocks FIGURE 3:10-YEARTREASURYNOTE, CONTINUOUSFUTURES,WEEKLY. the problemof“printingpress”solution: late commentatorsonthetopicofdeflation,hasput publisher of ernment andindividuallevels.AsRickAckerman, towering mountainofdebtatparticularlythegov- able tosimply“printingpress”itswayoutofatruly it becomeshardtoimaginethegovernmentnotbeing cally, debt-deflationisimportantbecausewithoutit, highly valuedrelativetootherassets. inability torepayincashleadsbeingmore poses (alsocalled rowing thatisnotgearedtowardproductivepur- lacking, orwhenthereisanoverabundanceofbor- whatever profitorreturntheborroweranticipated. repay theloan,plusinterest,alongwithproviding is called time, astheproceedsfromborrowedmoney(orwhat in thefuture.Thatpresentslittleproblemmuchof the currencydebtisdenominatedinatsomepoint — carriesindebt,thegreaterhisburdentoprovide more aperson—ormunicipalitynation-state future date.Itrepresentsa“demandformoney.”The obligations. A“debt”isapromisetopayatsome a personwhohastoomanycreditcardsorotherdebt purchased bythatcurrency. relatively morevaluablethantheassetsthatcanbe currency inwhichthedemandisdenominated money” vis-a-visthedemandformoney,making inflationary 1970s. understand —evenifyoudidn’tlivethroughthe driving priceshigherisrelativelyeasyformostto I thinkthisnotionofdeflationor,morespecifi- But whentheproceedsofborrowedmoneyare An easywaytoexplainthiswouldbeconsider However, aneconomycanalsohave“toolittle each dollarborrowedatthemargin.Ithoughtthis were gettingabout38cents’worthofgrowthfor between debtandGDPgrowth.Atthetime,we piece forBarron’sthatfocusedontherelationship diminishing returns...Intheearly1990s,Idida Inflate-or-die longagoreachedthepointof self-liquidating credit Rick’s Picks non self-liquidatingcredit

and oneofthemostarticu- ) aresufficientto ), an spring of2007,anditwouldbelittlesurprisewhy and inUSTreasurynotes. or abarofgold)andbullmarketsinboththedollar you can’tpayamortgagewithstockcertificate expect bearmarketsinstocksandgold(afterall, these “facesofdeflation”intocharts,weshould nated becomesmorevaluable.So,translating the currencyinwhichmostofdebtisdenomi- even ifinterestratesremainlowinrealterms,and burden ofdebtinrealtermsbecomesgreater— deflationary panicof2002:assetvaluesfall,the is supposedtohappeninadeflationfromthebrief like inthecharts.Mostofushaveasensewhat deflationary episodeinthe1990s. exact oppositeofwhatwesawinJapanduringits bond yieldsaremovinginthesamedirection,is sode. Thismovement,inwhichstockpricesand inflationary (oratleastmoneyexpansionist)epi- characterize thepastfouryearsasanythingbutan rates andrisingstockprices.Assuch,itishardto ized byrisinggoldprices,long-terminterest were leadingstockslower. bonds andafallingmarketforstocks.Bondyields 1990s. Thatcomparisonrevealedarisingmarketfor nese governmentbondsandtheNikkeiindexin provided acomparisonbetweenthemarketforJapa- Working Money Back inthespringof2002,Iwroteanarticlefor T should betellingyousomething.” trillions ofdollarstoproducesofainta“recovery” increased borrowinginthelastseveralyearsby HE Look atthechartsofthosefourassetclassesin As such,Iwanttofocusonwhatdeflationlooks However, thepastfouryearshavebeencharacter- Ackerman concludes:“Thefactthatwehave dollar’s worthofgrowth. as $6inafiscalquarterto“create”single ten yearshence,wewouldbeborrowingasmuch spelled disaster,unabletoimagineatthetimethat

F The bearmarket ACES

OF called“Gibson’sParadox,”which

DEFLATION anticipates the market’sfailureattheresistance levelof110. divergence atthetopofTreasury noterallythatbeganinthesummerof2006 FIGURE 4:10-YEARTREASURY NOTE, CONTINUOUSFUTURES,WEEKLY. market, andgoldforTraders.comAdvantage— I’ve writtenagreatdealaboutthedollar,stock B created, especiallyintheearlystagesofshift. tents, aswelltoprofitfromthenewopportunities both toprotectourselvesfromdeflation’sdiscon- give way,thenwewillbeinamuchbetterposition see thetechnicalfoundationforinflationarycase of inflation. of deflationinthewaytheycurrentlyseethreat similarly arcinghigher,beforepeopleseethethreat even athistoricallylowrates,andthedollaris for thesafetyofdependable,cash-generatingassets, term interestratesintothegroundasinvestorsclamor be untilthebondmarketsaresoaring,pushinglong- hard fortheinflationiststodeny.Ofcourse,itwillnot will havethesortoftechnicalfoundationthatbe and USdollarmarkets,thenthecasefordeflation in goldandthestockmarketbottomsbond technical reasonsforthesetrendstoreverse,tops not lostonanyone. notes havefinisheddownforfouryearsinarowis pessimism isall-pervasive),thefactthatTreasury pronounced thanthatofthemarketfordollars(where while thepessimisminbondmarketsisless ing bullmarkets—willonlycontinuetodoso.And stock market—whichhavealreadyenjoyedendur- interests memost,thesensethatbothgoldand years. Treasuries hasbeensimilarlybearishforthepastfew again intheautumnof2006.ThemarketforUS ropes, dippingtowardall-timelowsinlate2004and highs. Bycontrast,theUSdollarisperenniallyon autumn 2006,respectively,flirtingwithall-time bull marketsforyearsandwereasearlyspring sured bytheStandard&Poor’s500)havebeenin Both goldandthestockmarket(thelatterasmea- there issolittlesupportforthedeflationistcause. OUNCING But ifweareabletoseetheshiftasithappens, The longandshortofthisisthatifwecanfind It iscomplacencyinthefaceofthesetrendsthat

BONDS ? Traders .com The negative ¥ page47

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. peak inthespringof2003—isnegativediver- clear downwardtrendinthebondmarketsincea long-term bondmarketcharts—thatreveala before oureyes. the pastfewyearsmightbereversingthemselves that theeconomy’sinflationarytendenciesover market makeitanobviousplacetolookforclues “strategic location”andthesheersizeofbond financial fortunesinthemoderneconomy.That country’s capacitytoborrowisparamountits was thetruearbiterofeconomy,insofaras For manyyearsitwasarguedthatthebondmarket component ofthepotentiallydeflationarypicture. so muchthathereI’dratherfocusonthebond page 48¥Traders The mostinterestingtechnicaldevelopmentinthe 14 daydemoisbasedondelayed dataforselectproducts from selectmarkets andexchanges. 7 .com For moreinformation, visittheS&Cadindexat 2006 wouldbethefirstsuchmilestone).Butin take outaprevioushigh(thefromJanuary gence inthespringof2004. histogram goingbacktothefirstsuchpositivediver- gence intheweeklyM moving averageconvergence/divergence(M was anticipatedbyaseriesofhigherlowsinthe market bottomedinthespringof2006.Thisbottom the yieldside),wecanseethatTreasurynote Focusing onthebondsideofmirror(ratherthan index —isimportantforoneparticularreason. term chartofthe$TNX,or10-yearTreasuryyield was mirroredbyapositivedivergenceinthelong- in thesecondhalfof2006.Thisdivergence—which The bouncefromthe2006bottomhasyetto Traders.com/reader ACD

histogram thatdeveloped ACD ) poised tocontinuemovinghigher. 2007, evenasthestockandgoldmarketslook the bondanddollarmarketsforageforbottomsin trade them.Butitisworthrememberingasboth markets arenobetterthanthehumanbeingswho going forward.Thisisunderstandable,insofaras and bondmarket’sinterpretationoftheeconomy as muchaseven-monthlagbetweenthestock getting underway. their toppreciselyasthebullmarketinstockswas October 2002andMarch2003,bondsralliedinto while bondsweremovinglargelysidewaysbetween and managedtotestthatbottominMarch2003, ever, hadbottomedmonthsearlierinOctober2002 year notetoppedinmid-June2003.Stocks,how- stocks andbondsoverthepastfouryears.The10- traders, speculators,andinvestorsalike. even months—sendingoffconfusingsignalsto tracking oneanotheroftenlagbydays,weeks,or which isnotalwaysthecase.Evenmarketsthatare make thattestofthe2006lows. surprise meintheleastifbondmarketdidindeed before theymakemoreenduringtops,itwouldnot the stockandgoldmarketshaveanothersurgehigher gences remainsintact.Givenmysuspicionthatboth remain validaslongtheseriesofpositivediver- downside, thecaseforabottominbondswould of the2006lows. prevent furthercorrectionandaretest,forexample in mid-2003isstillthemaking.Thatdoesn’t that abottominthebearmarketbondsbegan the springof2004.Solong-termbetremains positive divergencesthathavebeenbuildingsince the bondchartisminisculecomparedwith could evengetaproperhearing. would havetobewonbeforethedeflationarycase move higherinbondprices,anargumentthat would beacriticalstepinbuildingthecasefor and eventuallytakeouttheJanuary2006.This Treasury notemarkettocontinuemovinghigher 2007 decline.Ifithas,thenweshouldexpectthe been resolvedbytheDecember2006toFebruary the SeptemberandDecember2006peaks—has tive divergence—anegativebetween is whetherthecorrectionanticipatedbynega- low inthefirstfewmonthsof2007.Thequestion tion, theT-notemarkethasestablishedahigher course ofthepost-negativedivergencecorrec- Prechter, Robert[2002]. _____ [2003].“DownGoesTheDollar!” Penn, David[2002].“Gibson’sParadox,” Ackerman, Rick[2005].“DerangedBullAbout S This articlewasoriginallypublishedon4/27/2007. UGGESTED So itcouldbereasonablyarguedthattherewas Consider, forexample,therelationshipbetween This assumesthatthemarketsmoveinsync, In fact,evenifthe2006lowswereexceededto It isworthnotingthatthenegativedivergencein John Wiley&Sons. Money.com, February11. Working-Money.com, March26. To Cool?”Rick’sPicks,December1. found onlineatwww.working-money.com. This article — and articles like it—canbe —andarticles This article

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. Head andShoulders— Flag — Fade Exponential MovingAverage Exchange-Traded Funds(ETFs) Elliott WaveTheory Directional MovementIndex(DMI) Divergence Convergence — Bollinger Bands— Average DirectionalMovementIndex(ADX)— in theTakoma political cartoon“CitizenBill,”whichispublished William L.Brown(coverart) page 50 technical analysis.HepassedtheSocietyof industry-specific breadthstats,andoverall a websitespecializingintradingstrategies,sector/ Arthur Hill reached [email protected]. www.whatsonsale.ca/financial.html andhemaybe Peterborough, Ontario,Canada.Hiswebsiteis equities traderandtechnicalanalystbasedin Gary GrosschadlisanindependentCanadian cartoons. of two,Brownoftendepictshisownfamilyin Bill, AGraphicEpic, newspapers from1988to1992.Thebook Times main trend;aconsolidation phase. slight driftinpricecounterto thedirectionof opening wouldbeshort. price. Forexample,atrader whofadedanup k)), wherek=2/(n+1);nno.ofperiods. price *k)+(Yesterday’smovingaverage(1- calculating EMAis:=(Today’sclosing the mostrecentclosingprice.Theformulafor moving average,theEMAplacesmoreweighton change (CBOE). (NYSE) andtheChicagoBoardOptionsEx- (AMEX), butalsotheNewYorkStockExchange principally theAmericanStockExchange stocks boughtandsoldasapackageonanexchange, price targetsmaybeprojected. Fibonacci ratiosareappliedtothepricespansand “correction” oftheprecedingfivewavesup. waves. Thethreewavesdownarereferredtoasa waves downtoformacompletecycleofeight rhythm orpatternoffivewavesupandthree which holdsthatthestockmarketfollowsa nique publishedbyRalphNelsonElliottin1939, by J.WellesWilder,DMImeasuresmarkettrend. ces failtoshowconfirmingtrends. come togetheratthefuturesexpiration. ful andmaycontinueinthatdirection. broken, areanindicationthatthetrendispower- ity andcontractindecreasedvolatility,when Bollinger Bandswidenduringincreasedvolatil- sure markettrendintensity. Indicator developedbyJ.WellesWildertomea- — Sellingarisingpriceorbuyingfalling . His“CitizenBill”appearedinseveral Sideways marketpriceaction thathasa • Traders — Whentwoormoreaveragesindi- is currentlyeditorofTDTrader.com, When futurespricesandspot Voice .com Developed byJohnBollinger. — Apattern-recognitiontech- was publishedin1990.Father , When themiddlepricepeak Comic Relief — Avariationofthe is thecreatorof — Collectionsof — Developed , and A President TOSADATS NTI ISSUE THIS IN ARTIST AND UTHORS Funny Stochastics Oscillator Smoothing Simple MovingAverage— Retracement Resistance Relative Strength Oversold Overbought Moving AverageConvergence/Divergence(MACD) Overbought/Oversold Indicator Lag — Analysis ofSTOCKS&COMMODITIESmagazine, with emphasisontheS currently focusesonallmajorindexesandsectors Austin Passamonte [email protected]. stock market.Shemaybereachedat Chaitali Mohile main contributortotheChartSchool. technical analystforStockCharts.comandthe Belgium. PriortoTDTrader,hewasthechief David Penn website. [email protected]. He isthecurrenteditorforaneducationaltrader’s Technical Analysts(S with distinctionandisamemberofI indicator thatcomparestoday’s pricetoapreset taining acorrectappraisalof the underlyingtrend. that removesexcessdatavariability whilemain- effect anindividualdatapoint hasontheaverage. larger thedenominatorofaverage),less The longertheperiodoftimestudied(thatis, average ofaseriespricesoverperiodtime. direction oftheprevioustrend the Standard&Poor’s500stockindex. performance ofastocktomarketindexsuchas vulnerable toareaction. too farandfastineitherdirectionthusare that attemptstodefinewhenpriceshavemoved signals. the zeroline,anddivergencesgeneratebuysell low a moving averagesthatareplottedaboveandbe- — be beforeorafterthereferencevalue. generic useofthetermincludesvaluesthatmay to onevaluebeingbehindorlaterthananother, value andanother.Thoughlagspecificallyrefers sis, lagreferstothetimedifferencebetweenone price data.Also,intradingandtimeseriesanaly- as amovingaverage,followsortrailstheinput of agiventradableishigherthanthosearoundit. chart pattern. or reverseddirection;usuallyseenasaprice have stoppedrisingandeithermovedsideways steeply andtoofast. steeply andtoofast. The crossingoftwoexponentiallysmoothed The numberofdatapointsthatafilter,such zero line.Thecrossover,movementthrough — Marketpricesthathavedeclinedtoo — Apricelevelatwhichrisingprices — Simply,amathematical technique — Marketpricesthathaverisentoo — Apricemovementintheopposite is TechnicalWriterfor is anactivetraderintheIndian — Acomparisonoftheprice PX — Anoverbought/oversold TA is aprivatetraderand and O London) diplomaexam The arithmeticmeanor EX — Anindicator option markets. ATF -I TFA Underlying Security Underlying Instrument Volatility Triangle Trendline —Alinedrawnthatconnectseithera Trend Channel Trading Range Swing Chart Support for ourcomprehensiveTraders’ Glossary. Log ontoourwebsiteat M fund investmentstrategyforclientportfolioscalled Technicians Association.Hehasdevelopedamutual since 1969andwasamemberoftheMarket Jacob Singer,PhC, [email protected]. in telecommunications.Hemaybereachedat Paolo Pezzutti He [email protected]. Working-Money.com, andTraders.comAdvantage. [email protected]. at trading andtechnicalanalysis.Hemaybereached currency trader,andhastaughtclassesinoption Rudy Teseo Mominvesting.com [email protected]. OM price historyoverthelast12months. move upanddowninprice,basedonitsdaily prevailing trend. trendline definedbypricemovesagainstthe between thebasetrendlineandreaction cally, thistermhasbeenusedtodenotethearea centered aboutthemostlikelypriceline.Histori- tom boundariesneednotbeofequallength. rower pricefluctuationsovertime;topandbot- 100 andthensmoothed. then transformedintoarangebetweenzeroand window ofhighandlowprices.Thesedataare purchase uponexerciseofthe option. subject topurchaseuponexercise. tions aremarkedbyhorizontaltrendlines. or resistanceasinadowntrendline.Consolida- can representeithersupportasinanuptrendline series ofhighsorlowsinatrend.Thetrendline for anyoneday’strading. lished bytheexchangeforaspecificcommodity commodities, thehigh/lowpricelimitestab- and lowpricestradedduringaperiodoftime;in sured intheswingchart. price changesoflessthan5%willnotbemea- or numberofdays.Forexample,percentage treme basedonasetcriteriasuchaspercentages from eachpriceextremetothenextex- price chartpattern. sideways orreverseddirection;usuallyseenasa prices havestoppedfallingandeithermoved Investing. Hemaybereachedat — Ahistoricalpricelevelatwhichfalling — Apatternthatexhibitsaseriesofnar- — Ameasureofastock’stendencyto — Achartthathasastraightlinedrawn is aprivatesecurity,option,and — Thedifferencebetweenthehigh lives inRome,Italy,andspecializes — Aparallelprobablepricerange — Inoptions,astocksubject to Traders.com has beenatechnicalanalyst — Atradinginstrument July/August 2007 ■ ■

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