Trading the Macd+H the Dow's Moment of Truth the Nikkei

h raothsarvd20 BLACK GOLDISBACK 18 The breakouthasarrived WHEN COPPERCRACKS The declinecontinues THE NIKKEIBREAKDOWN 14 Near themake-or-breakpoint MOMENT OFTRUTH 10 THE DOW’S Adding thehistogram TRADING THEMACD+H upr ra oig 45 A supportbreakcoming? GE FALTERS W REMEMBER VOLATILITY? T 37 WILL TRANSPORTS… Breaking tonewhighs 33 BANKING BREAKOUT Favoring thepossibility LOWERING RATES? T TrTraders ake ahike? 22 oward aseasonalsweetspot thfrrssac 42 atch forresistance CATPTEN SECTORS CHARTPATTERNS THE MAGAZINE FORINSTITUTIONALANDPROFESSIONAL TRADERS Oversold BounceFor The Greenback aders 38 Semiconductors Sideways SEMICONDUCTORS, WEEKLYANDDAILY

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. page 4 19 18 18 16 16 14 14 10 Traders.com Copyright ©2006 TechnicalAnalysis,Inc.Allrights reserved.Informationinthis publication mustnotbestoredor reproduced TABLE OFCONTENTS INDEXES Here’s whattolookfor. NASDAQ 100lookspoisedtobreaktherecenttrading range. A Hill by Arthur for theNASDAQ? Has theGrinchstolenChristmasrally, oris italreadyover by GaryGrosschadl this pointstoacontinuationofthe April–June decline. The Nikkei225isbreakingdownonanumberoffronts,and Hill by Arthur parameters? three days,notasinglestockhascomeupthatmeetsthose to meetcertainparameters. What doesitmeanifforthepast Every morningIlookforcertainstockstobuy, buttheyhave by JacobSinger, PhC bend. NASDAQ remainsinarisingchannelandthetrendhasyetto Despite awarningshotfromthestochasticoscillator, the Hill by Arthur What happenswhenlong-termbullsbecomeshort-termbears? by DavidPenn point. three days,andthiscorrectionisnearingitsmake-or-break The DowJonesIndustrial Average hascorrectedoverthelast Hill by Arthur adding thehistogrammightmakeitevenbetter. As goodasthemovingaverageconvergence/divergence is, by DavidPenn Downleg The NASDAQ 100 Winds UpFor The Pitch NASDAQ CompositeIndex Shows Pending Nikkei BreakingDown Meeting Parameters On The S&P500 NASDAQ ChannelsHigher Short-Term QQQQSell? Short-Term MomentOf Truth For The Dow Tr •Traders narrowing consolidationcan’t lastforever, andthe ading The M ading The ™ ispublishedby Technical Analysis,Inc.,4757California Ave.S.W.,Seattle,WA98116-4499. 1206938-0570or 1800832-4642. PrintedintheU.S.A. .com TrTraders THE MAGAZINE FORINSTITUTIONALANDPROFESSIONAL TRADERS ACD

Histogram, aders Part I Part 22 22 21 30 29 28 25 24 20 METALS ANDENERGY CHART PATTERNS seasonal sweetspot. Breakouts inoilstocksappearasthegroupmovestowarda by DavidPenn signal acontinuationhigher. over thelasttwoweeks. Traders shouldlookforabreakoutto After abigsurge onhighvolume,Halliburtontookabreather Hill by Arthur to higherprices. Gold &SilverIndexrecentlybrokeflagresistance,pointing shoulders reversalpattern,thePhiladelphia Despite thepotentialforamassivehead& Hill by Arthur symmetrical trianglehasarrived. The much-anticipatedbreakoutfromamultimonth by DavidPenn reliable, hasprovidedsome wrongsignalslately. This candlestickpattern, whichisquiterareandusually by PaoloPezzutti as theholidayseasonbegins. A classicchartpatternsuggestsmoreupsideforthe S&P500 by DavidPenn anticipated thereversalinoilstocks. Negative divergences intheMACDhistogramandstochastic by DavidPenn near-term breakoutmeanforgoldgoingforward? Bullish long-term,bearishintermediateterm...whatdoesa by DavidPenn support andrecentfirmnesscouldforeshadowabreakhigher. The Decemberdeclineinthe Amex GoldBugsIndexhit Hill by Arthur Black GoldIsBack Halliburton Takes ARest Flag Breakout For XAU The Falling Three Method The S&P500’s Cup With Handle Crackin’ Crude Gold’s ThreeTrends The GoldBugsIndex HitsSupport Copper Cr MARCH/APRIL 2007•VOLUME5NUMBER2 ac ks

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. TABLE OFCONTENTS 37 36 35 34 33 32 38 38 37 page 6 SECTORS CHART PATTERNS reversal setup. HOLDRS worksitswaythroughapotential1-2-3trend W by DavidPenn resistance bearound? an oversoldbounce.However, thebiggertrendisdown—will The USDollarIndexshowssignsoffirmingandlooksripefor Hill by Arthur possibility ofamovelowerforretailstocks. An autumnconsolidationintheretailHOLDRShintsat by DavidPenn a movelowerforinterestrates. two monthsbutremainsshortofareversal,andtheoddsfavor The 10-year Treasury noteyieldfoundsupportoverthelast Hill by Arthur A classicchartpatternsuggestsbullishtimesforbonds. by DavidPenn for adoubletop. convergence/divergence meanstradersshouldalsobeonguard high, butabignegativedivergence inthemovingaverage The North American Telecom Index ischallengingitsprior Hill by Arthur from aconsolidationsuggestlowerpricesahead. Negative MACDhistogramdivergences andabreakdown by DavidPenn and projectfurtherstrength. this weektoaffirm thecurrent uptrend The BankingIndexbroketonewhighs Hill by Arthur exchange tradedfundisstilllaggingtheNASDAQ. months, buttherallyisrunningintoresistanceand The InternetHOLDRSreboundedsharplyoverthelastfour Hill by Arthur Internet HOLDRSReachesResistance Internet Sideways Semiconductors An Oversold BounceFor The Greenback A Head&Shoulders Top InRetail? Long-Term Rates Trending Lower A Cup With HandleFor Treasury Notes A Double Top In Telecom? Tr A BankingBreakout •Traders aiting forsignsofdirectionalityasthesemiconductor ansports ansports Take AHike .com TrTraders THE MAGAZINE FORINSTITUTIONALANDPROFESSIONAL TRADERS aders 42 42 41 39 50 49 47 45 44 50 TECHNICAL INDICATORS A Advertisers’ Index Glossary the dollarbackupayearlater? in October. Will positivedivergences bring Negative divergences tookthedollardown by DavidPenn solidify atrendchange. base, andtradersshouldwatchforaresistancebreakoutto The NASDAQ100 Volatility Indexhasbeenslowlybuildinga Hill by Arthur help assessthestrengthofmarketmoves. breadth. Itispopularamongdaytradersandscalpers,asitcan short timeframe,asitisquiteeffective atmeasuringmarket The tickisavaluabletool,especiallywhenutilizedinvery by PaoloPezzutti to moreweakness. S&P 500thismonth,andabearishcandlestickreversalpoints The S&PSmall-CapiShareshasbeenunderperformingthe Hill by Arthur strategies. the zeroline,targeting specificentries,andexaminingexit Here’s alookattradinghistogramdivergences andcrossesof by DavidPenn relative weaknessincreasesthechancesofasupportbreak. GE hasunderperformedtheS&P 500sincemid-October, and Hill by Arthur it gotinstorenow? eBay hascomeoff asummerbottom foranicegain,butwhat’s by GaryGrosschadl Dollar Divergences: UpAndDown VolatilityRemember The Index? A Tick IndicatorOverview Small CapsShow Relative Weakness Tr GE Starts To Falter eBay Tests Overhead Resistance uthors AndArtist ading The M ading The ACD

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help make it even better. even it make divergence is, adding the histogram might histogram the adding is, divergence As good as the moving average convergence/ average moving the as good As by DavidPenn

Elder’s excellenttradingprimer, M was movedtospendmoretimegettingknowthe indicators hadcertainlytakenplace.Ifanything,I me feelasifsomesortofcanvassingavailable — thoughtherewasenoughtrialanderrortomake the histogramcameasresultofascientificsurvey Living selling. bullish andripeforbuying or bearishandripefor general indicatortodetermine whetheramarketis in technicalanalysis”: And later,undertheheading“Thestrongestsignal forex traderandauthor,has usedtheM have adherents.Forexample,RagheeHorner, completed, buttheindicatoritselfcontinuesto did backin1993when M about the“M what is.I’mnotsureifElderfeelsasstrongly Working-Money.com, particularlyaboutwhat Ire- THE OPTIMIZED TRADER O O ACD ACD I’ve writtenabouttheM If that’snotanendorsement,thenIdon’tknow that amajorreversalisprobablyathand. top andbottom,butwhenyouseeone,know or sellsignals.Theydonotoccurateveryimportant major turningpointsandgive“extra-strength”buy in technicalanalysis.Thesedivergencesidentify but theygivesomeofthemostpowerfulmessages occur onlyafewtimesyearinanygivenmarket, Divergences betweenMACD-Histogramandprices tools availabletoamarkettechnician. growing strongerorweaker.Itisoneofthebest bears areincontrol,butalsowhetherthey original MACD.Itshowsnotonlywhetherbullsor balance ofpowerbetweenbullsandbearsthanthe MACD-Histogram offersadeeperinsightintothe : H afterreadingthisentryfromAlexander H forshort).Iwon’tpretendmyselectionof ACD the M divergence histogram,alsoknownas the movingaverageconvergence/ I evercobbledtogetherwasbasedon ne ofthefirsttradingmethodologies -Histogram” todayin2006ashe M ACD Trading ForALiving

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. PROPHET FINANCIAL the commoditychannelindex (C as aseriesofverticalbars.Other indicatorssuchas oscillators liketheR gences. Inmuchthesamewaythattradersuse better. Hewrites: According toMurphy,inawaythatmakesiteven a lowerlow(apositivedivergence). M a higherhigh(anegativedivergence)orwhenthe looking forbullishcrosses(remember,theM M stochastics, traderslookforinstanceswhenthe ultimately wonmeovertothecauseofM As noted,thisabilitytocreate“actionsignals” indicating asell. line crossingbelowsignalline)abovethezeroas line indicatingabuyandbearishcrosses(theM line crossingabovethesignalline)belowzero — the M used. Oneisasanoscillator.Insofarthetwolines vertical barsabove thezeroline,indicates amarket plotted ashistograms.Apositive histogram,with tween theM The histogramsimplyrepresents thedifferencebe- crossover andoscillatoraspectsoftheM that canbesold(bothlinesabovethezeroline). zero line)aswelloverboughtmarketconditions conditions thatcanbebought(bothlinesbelowthe have usedthe M operate aboveandbelowazeroline,sometraders the longtradewouldbeinitiated. highlighted sessionshowsthecandlestickabovewhich (in blue)crossedovertheslowersignallinered).The in theindicatorwindowshowswherefasterMACDline signals thatcanbederivedfromit.Thehighlightedsection is shownhere,alongwithoneofthemorecommonbuy FIGURE 1:SEARSHOLDINGSCORP.,DAILY. March/April 2007 ACD ACD So wheredoesthehistogramfitintoallofthis? Traders havealsousedtheM Murphy pointsoutthatsometraderscombinethe action signalsmuchsooner. lost initsuse.Whatisgainedawaytogenerate signals (inaslightlydifferentway),nothingis Since thehistogramshowsMACDcrossover and greatlyenhancesthevalueofindicator. even earlierwarningsofpotentialtrendchanges histogram better. Thattechniqueiscalledthe just described,there’sawaytomakeiteven As goodastheMACDindicatorisinform

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. PROPHET FINANCIAL in whichtheM at theendofabrief,largelysidewaysconsolidation. a buysignalwiththethirdbarofpattern.Thisparticularpatternhappenstoappear the MACDhistogram.Here,histogramisforming“P-p-P”pattern,whichgives FIGURE 2:GOLDMANSACHS,DAILY. by contrast,withverticalbarsextendingbelowthe the slowline(thesignalline).Anegativehistogram, page 12 • SubscribetoOurFree“Trend Weekly” E-Letter • Target 100%Gains with MinimalRisk • Your PortalforProfits W

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line) isabove zero line,indicatesamarketinwhichthe M is belowthesignalline. When thesetwolinesarecloseorconverging, Traders.com/reader in solidgainswithinafewdays. “trigger,” thatsessionishighlighted.Goinglongthedayaftertriggerresulted the highofday(orsession)that“M-m-M”patterniscompleted.Alsocalled highlighted histogrambarsshowa“M-m-M”pattern,whichproducesbuysignalabove FIGURE 3:MASTERCARD,DAILY. ACD

line my M slope oftheindicator.Infact,primarysignalin the M Many —thoughnotallofthesignalscreatedby B the slopeofM in creatingactionsignalsiswhatElderpointsoutas — aboveorbelowthezeroline.Anotherfactorkey each other,thehistogrambarswillincreaseinlength these twolinesarediverging,movingawayfrom the histogrambarswillbeshallowandsmall.When signals usingothermethodssuchastheT and S1methodshavebeenconfirmedbybuysell than dailyones,I’vefoundthattradesusingtheL1 signals arelessfrequentandperhapsmorereliable the histogram.AlthoughElderwritesthatweekly primary short)andremainmyfavoritesignalsusing these signals“L1”and“S1”(primarylong bounce) inordertocreateabuysignal.I’vecalled a temporarychangeinslope(ahistogrampullbackor a changeofslopeor,moreaccurately,involvesusing are created.TouseElder’sshorthand,withaprimary excellent entrypointsintrends.(SeeFigure2.) as oftensimplyprovinginhindsighttohavemarked Another exampleoftheL1“breakout”MACDHtrade.The REAKOUTS the slopeofMACD-Histogramisdown. last barislower(likethedepthoflettersP-p),then M), theslopeofMACD-Histogramisup.If the lastbarishigher(likeheightoflettersm- relationship betweenanytwoneighboringbars.If The slopeofMACD-Histogramisdefinedbythe Let’s lookathowtheL1andS1breakoutentries methods suchastheT by buyandsellsignals usingother and S1methodshave been confirmed I’ve foundthattrades usingtheL1 ACD ACD H tradingmethodologyinvolvesjustsuch

histogram arerelatedtochangesinthe

AND ACD histogram.Hewrites:

CONTINUATIONS RIX March/April 2007 . RIX

as well

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. and exitstrategies. trade crossesofthezeroline,specificentrytargeting, I willlookattradinghistogramdivergences,howto themselves hardtocomeby. appears wellunderway,andbargainentriesprove is oneworthkeepinginmindwhenamarketadvance superior entry.Nevertheless,thecontinuationtrade bounce (inafallingmarket)fromwhichtogain traders withapullback(inrisingmarket)or tracking marketsthatappearunwillingtoprovide about ayearago)thatdoasgoodjoborbetterof Achelis, StevenB.[1995]. S This articlewasoriginallypublishedon12/6/2006. are othermethods(suchastheB a continuationtradetothedownside. slope (asin“P-p”)wasallthatneededtosignal session (m-M).Totheshortside,adecreasein showed anincreaseinslopefromtheprevious trader togolongabovethehighofanysessionthat as Idubbeditatthetime)simplyallowed opportunity. Thecontinuationtrade(orL3andS3 to getthepatternkeyaL1orS1buying ness (inabulltrend)orstrengthbear but thetrendwasnotshowingenoughofweak- instances whenamarketwasmovingintrend below thelowofthat“triggersession.”SeeFigure3. that thetraderwouldbelookingtosellorgetshort would bethetriggersession.Here,differenceis -3.5, then-6.Thesessionthatreceivedthe“-6” m,” “p-P-p,”or,againnumerically,reading-5,then that surrounditoneitherside. below thezeroline)thanpairofhistogrambars the zeroline)orlonger(incaseofahistogram bar iseithershorter(inthecaseofahistogramabove would belookingtogetlong. trigger sessionabovethehighofwhichtrader the “+3.4”insecondexamplewouldbe +3, then+1.7,+3.4.Thesessionthatreceived but foranexample,imagineahistogramthatreads values couldbeanywherebetween+100and-100, — from“M-m-M”to“P-p-P.”Numerically,these patterns thatcouldproducethisslopeshiftupward the histogramslopesupward.Thereareanumberof long orL1trade,Iamlookingforasessioninwhich Gifford, Elli[1995].TheInvestor’sGuideTo Elder, Alexander[1993]. Appel, Gerald[1985]. March/April 2007 UGGESTED In partII[ While thisapproachhasbeenworthwhile,there I begantrackingavariationonthisforthose Conversely, totheshortside,apatternlike“m-M- The keypointisthatthemiddlevalueorhistogram Irwin ProfessionalPublishing. nical AnalysisFromAToZ, Publishing. Technical Analysis, Wiley &Sons. Trading ForALiving, tific InvestmentSystems. Advanced Version,Scien- vergence TradingMethod, Average Convergence-Di- found onlineatwww.working-money.com. This article — and articles like it—canbe —andarticles This article found onpage47ofthisissue—Editor

READING ■ The Moving Financial Times/Pitman

John Tech- OSO

method Iwrote ], Hartle, Thom[1991].“MovingAver- Gopalakrishnan, Jayanthi[1999]. (MACD),” age Convergence/Divergence TIES Analysis of “Trading TheMACD,” , Volume17:October. S Technical Analysisof TOCKS Horner, Raghee[2005]. Kahn, Michael[2006]. S MODITIES Profit, Trading ForMaximum cal Analysis:PlainAnd TOCKS &C For moreinformation, visittheS&Cadindexat JohnWiley&Sons. Technical OMMODI

& C , Volume9:March. OM - - THE TRADERS’MAGAZINE AND MORE TRADESTATION 77 2000i, ALLOCATIONMASTER, CQGNET, PLUS PRODUCTREVIEWSON to getstarted complicated? Here’s how Think optionsaretoo OPTIONS David VomundA of INTERVIEW 47 relatively flatmarkets Tr 37 MACD 26 And intradaytrading GANN SWINGS market moves system forcapturing the developmentofatrading A step-by-stepthrough 14 VOLATILITY STOPS use thisindicator? How doprofessionals ADX LIKETHEPROS ade thisindicatorin Techni- ForeX IQ 60 http://www. traders .com/ OCTOBER 1999 Murphy, JohnJ.[1996]. Traders.com/reader John Wiley&Sons. The VisualInvestor Publishing. Times/Pitman Simple, Pring, Martin

Hill. McGraw- Analysis To Technical Introduction J. [1998]. Financial ■ Traders , , .com • page13

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. move seriously lowerthattheremight move seriouslyhigherbefore they who thinkthatstockpricesare likelyto side hasapparentlyencouraged those cently, thestalledprogress to theup- when itcomestoatrading call.Re- b F long-term when happens What by DavidPenn QQQQ Sell? Short-Term REVERSAL its make-or-break point. make-or-break its days, and this correction is nearing is correction this and days, has corrected over the last three last the over corrected has T Average Industrial Jones Dow The by ArthurHill Dow For The Moment Of Truth Short-Term FLAGSANDPENNANTS the normsincemid-August. days, withshort-shallowpullbacks flat. Thecurrentpullbacklastedthree has beenquiteshalloworsimply August, andeachpullbacksincethen The deepestpullbackoccurredin the pullbackslastedjustafewdays. It wastrulyanamazingmove,and for thenextthreeandahalfmonths. and movedprettymuchstraightup The averagebottomedinmid-July page 14 ulls become short-term bears? short-term become ulls near brokenresistance. average foundsupport falling flagandthe The declinelookslikea I amturningtothe60-minutechart Tradable: Tradable: side ofsomeoneyourespect ing thanbeingontheopposite ew thingsaremoredisconcert (D Dow JonesIndustrialAverage he medium-termtrendforthe

• Traders I NDEXS I NDEXS JIA I NDEXS ) isclearlyup(Figure1). QQQQ INDU .com convergence/divergence (M divergences inthemovingaverage tage, November6,2006).Positive The EndNear?”Traders.comAdvan- well-telegraphed bottom(seemy“Is have enjoyedcamecourtesyofafairly stocks. the shortterm—fromabetagainst be anopportunitytohad—albeitin we movetoward midmonth.Assum- tive divergences)cominginto playas in earlyNovember(namely, theposi- the sameevidencethatwasso helpful in earlyNovember,Idetect someof that madeitpossibletocallthe bottom Looking atthesamecharacteristics Figure 1. in themarketearlyNovember.See factors cameintoplaytoputabottom stochastic, a2Bbottom...allofthese again. turn short-termmomentumbullish back aboveMonday’shigh(52)to term, andtheRSIneedstobreak clearly movingdownfortheshort below 40onTuesday.Momentumis declined below50onFridayand breakout. Thismomentumindicator strength index(R highs yetagain. this uptrendandtargetamovetonew high wouldsignalacontinuationof upper flagtrendlineandMonday’s ongoing uptrend.Abreakabovethe viewed asacorrectionwithinthe the declinebackbelow12050is trendline onthedailychart. back thatcouldextendtotheAugust would openthedoortoadeeperpull- signs oftrouble.Abreakbelow12025 at 12030isthefirstleveltowatchfor the resistancebreak.Broken resumes withoutmovingbackbelow turns intosupportandtheadvance a minorcorrection.Brokenresistance resistance. Thisisallprettynormalfor average foundsupportnearbroken decline lookslikeafallingflagandthe clined below12050thisweek.The above 12150lastweekandthende- hit anewall-timehighbymoving term priceaction(Figure2).TheD to focusonthispullbackandshort- The short-termuptrendtheQ So howdoestalkofatopplaynow? I amalsowatchingtherelative As longasbrokenresistanceholds, See www.Traders.comformore. This articlewasfirstpublishedon11/1/2006. ■ SI ) toconfirmaflag ACD QQQ ) and JIA s since thenhasforthemostpartbeenmovingup. FIGURE 1:DJIA,DAILY. including anew high. will beanattempttorestorethe trendthatbeganonFriday,November3, completed thefirststageofapotential 1-2-3trendreversal.Thenextstage FIGURE 1:NASDAQ100TRUST SERIES(QQQQ),HOURLY. of trouble. FIGURE 2:DJIA,HOURLY. The DowJonesIndustrialAveragebottomedinmid-Julyand Broken resistanceat12030isthefirstleveltowatchforsigns The QQQQhave March/April 2007

PROPHET FINANCIAL, INC.

TC2000.COM; TELECHART 2007

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. sal setup,thehourlyQ breakdown lowatabout42.65-42.7. instead, reversesandfallsbelowthe Q 1-2-3 trendreversal,particularlyifthe Friday. Thisactionsetsupapotential the breakdownlevelbycloseon and beganmovinghigher,reaching bounded —albeitonweakvolume mediately, however,theQ trendline laterintheday.Almostim- on Thursdayandbrokebelowthe a one-houreventastheQ bottom. Thetrendlinebreakwasreally day uptrendfromtheNovember3rd signs comefromthebreakoffive- chart, itseemsthatthemostbearish side shouldbenoticeableonanhourly ing thatashort-termmovetothedown- the M negative divergencesontwolevels: and 7isstronglysuggestiveofamar- of thehistogrampeakonNovember6 M degree ofcaution.Withregardtothe ishness oftheseindicatorswithsome there issomereasontoviewthebear- from thefirstthreedaysofNovember, at leastasapparenttheonesnoted divergences are,inandofthemselves, tic (Figure2).Whilethesenegative March/April 2007 QQQ T ACD In additiontothe1-2-3trendrever- the winningteam in bothstocksandcommodities,canbeutilized indaytradingaswell aslongtermtradingsuccessfully. J The Profitunity Trading Group offersover 40years oftradingexperiencetoourclients.Our methodologyworks T ACD estimonials weresenttoProfitunity Trading GroupfromactualinvestorstradingtheProfitunityTrading Groupsystem.There is ariskoflossintradingcommodities.

histogram, forexample,thesize fails tosetanewhighand, AKE

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topped reveals

re- tor willformthreepeaks,withthe pattern). Atthesametime,indica- in thecenter(likeahead&shoulders have threepeakswiththehigherpeak In anegativediamonddivergencewe mirror thoseinthemarketquestion. the peaksandtroughsinindicator mond” divergencebecauseoftheway of divergencecouldbecalledthe“dia- vergences,” March8,2006).Thiskind Money.com article,“Dial‘D’ForDi- about before(seemyWorking- vergence —odd,butoneI’vewritten a particularlyoddsortofnegativedi- ning November13.Thiswouldcreate one likelytodeveloptheweekbegin- chastic peakofNovember1-3andthe stochastic theonebetweensto- relevant negativedivergenceinthe the stochastichigher,makingonly much buyingatallonMondaytopush peak. Infact,itwouldn’ttakevery to thelevelofpreviousstochastic helped pushthestochasticup,almost late sessionrallyonNovember10 the earlyNovemberhistogram. seem alittlemodestgiventhesizeof a fewdayslater,thesubsequenthighs While thosepricehighswereexceeded that wereconcurrentwiththepeak. ket thatwilltakeoutthepricehighs With regardtothestochastic, For moreinformation, visittheS&Cadindexat

Vi OF sit usat:WWW.PROFITUNITY.COM Y OUR the secondpricepeak.Failingthat, peak doesnottakeoutthehighsetby be ineffectaslongthethirdprice That negativediamonddivergencewill three. center peakbeingthelowestof at thebeginningofmonth.Willdivergencesnowbringmarketdown? both theMACDhistogramandstochastic.Divergencesbroughtmarkethigher FIGURE 2:NASDAQ100TRUSTSERIES(QQQQ),HOURLY. F ov open contracts. In lessthansixmonthsIhave As oftodayIhave over $50,000incashand " Istartedoutwith$23,500inmyaccount. We Or email:[email protected] For moreinformationcall:760-436-8054 Traders.com/reader rdoubledmyaccount"-D. Todd er • CQG I M INANCIAL don’t justteach... We trade! ndicators Compatiblewith: etaStock ™ •eSignal ™ • TradeStation be thatmuchlesspotent. bear case—forthetimebeingwill ™ F • Negative divergencesappearin See www.Traders.comformore. This articlewasfirstpublishedon11/14/2006. UTURE Traders ™ .com

■ • page15 you! oin !

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. METASTOCK for—what’s that mean? with theparametersIwassearching REPORT. FIGURE 1:PERFORMANCEEXPLORATION page 16 makes thechannelsymmetrical. to thelinearregressionline,which trendlines areparallelandequidistant closes arebelow.Theupperandlower closes areabovethelineandsome regression isthelineofbestfit.Some July 21toNovember15,thelinear itself. Basedontheclosingpricesfrom middle lineisthelinearregression nel ismadeupofthreelines.The (Figure 1).Thislinearregressionchan- CHANNEL LINEARREGRESSION trend has yet to bend. to yet has trend remains in a rising channel and channel rising a in remains stochastic oscillator, the NASDAQ the oscillator, stochastic T the from shot warning a Despite by ArthurHill Channels Higher NASDAQ up that meets those parameters? those meets that up days, not a single stock has come has stock single a not days, does it mean if for the past three past the for if mean it does meet certain parameters. What parameters. certain meet stocks to buy, but they have to have they but buy, to stocks E certain for look I morning Every by JacobSinger,PhC The S&P500 P Meeting ELLIOTTWAVE kets tolookforstocksbuy.These The trendisclearlyupaslongthe Tradable: Tradable: arameters On NASDAQ, andTorontomar- tion ontheNewYork,AMEX, very morningIrunanexplora- he pricechartshowsthe linear regressionchannel N

Not onestockhaspoppedup • Traders ASDAQ $COMPQ SPX

Composite witha .com uptrend. Thestochasticoscillator and reflectsthestrengthofcurrent vember 2.Thisisquiteextraordinary held above78fromAugust17toNo- lator movedabove80inAugustand early November.Thestochasticoscil- tic oscillatorfiredawarningshotin (2570!). trendline isexpected move towardtheupper is shows thattheindexisstillrising. now November2006,andthechart year ofmisfortuneforthemarket.Itis suggested that2006wouldtrulybea tember 22,2005.Atthattimethechart N the channelholds, downtrend. Aslongas thoughts ofa we couldthenentertain channel trendlineand would breakthelower move below2350 nel. Asitnowstands,a would breakthechan- port andamovebelow trendline actsassup- situation. Thelower nal anoverextended this trendlinewouldsig- tance andamoveabove trendline actsasresis- holds. Theupper lower channeltrendline now recovered inaB-wave. index thenfellinanA-wave, andhas wave topwasthebubbleof2000. The the chartlooksvery this chartonSep- wave. ping outinaB- dex couldbetop- shows thatthein- monthly chart, 2, theS&P500 under way.Figure ticipating couldbe we havebeenan- that thecorrection ploration result. shows myfinalex- ing me?Figure1 ask, whatisthistell- is unusual,andI has comeup.This days, notonestock For thepastthree certain parameters. stocks mustmeet ASDAQ the chartmustlookright. Despite aclearuptrend,thestochas- The firstruleinElliottwaveanalysis I firstintroduced This suggests

is risinganda

right. Thefifth in aB-wave? FIGURE 2:ELLIOTTWAVEANDGANNFANNOFTHES&P500,MONTHLY. Couldtheindexbetoppingout

FIGURE 1:NASDAQ. In thiscase, 20. Thisaswe know hasnothappened, suggested aturningpointon October cast previouscorrections(blue arrows), The Ganncycle,whichcorrectly fore- wave correctionwillnotbethat severe. tops. Thisusuallysuggeststhat theC- B-waves haveexceededfifthwave to predict.Ihaveseeninstanceswhere shown). B-wavetopsarealsodifficult usually risinginanabcformation(not ity astheN bearish, butitdoespointtovulnerabil- months. Idonotconsiderthisdip this isthefirstsignofweaknessin dipped below65onNovember7,and oscillator holdsabove50.Forame- to bebullishaslongthestochastic tended. Iwouldconsidermomentum B-waves arenotimpulsewaves, The indexremainsonanuptrendandhasyettoshowsignsoffaltering. ASDAQ

becomes overex- for theN dium-term trendreversal,Iwouldlook stochastic oscillatortobreak50. 1x4 Gannline. that theindexcouldriseto the green Gann’s ruleof8’slines.This suggests the suggestedtargetof1337.40,one projection. error oneithersideofthecyclical although weshouldallowatwo-month The B-wavehasalsobrokenabove See www.Traders.comformore. This articlewasfirstpublishedon11/16/2006. ASDAQ See www.Traders.com formore. This articlewasfirstpublishedon11/29/2006.

■

to break2350andthe March/April 2007 ■

ADVANCEDGET METASTOCK

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. March/April 2007 © 2007E*TRADE FINANCIALCorp.Allrightsreserved. by E*TRADEBank,aFederalsavings bank,MemberFDIC,oritssubsidiaries.BankdepositsareFDIC-insured toatleast$100,000. The E*TRADEFINANCIALfamilyof companiesprovidesﬁnancial servicesthatincludetrading,investing,cashmanagementand lending. Bankingand lendingproductsandservicesareoffered this service. 3. Source: InformaResearchServices, Inc.,Calabasas,CA.www.informars.com.Althoughtheinformationhas beenobtainedfromthe 2. TheAnnualPercentageYield (APY) oftheCompleteSavingsAccountas1/24/07ismorethan 6timesthenationalaverageAPY forsavings accountswithbalancesof$25,000. 1. AnnualPercentageYieldiseffective1/24/07andsubjecttochange. A$1minimumdepositisrequiredtoopenanewaccount. Withdrawallimitsapply.Online statementsrequired. For detailsandimportantinformation aboutQuickTransfer,pleasevisitetrade.com/quicktransferdetails No accountfees. 5.05 MAX No minimums. NEW COMPLETESAVINGS ACCOUNT No gimmicks. YOUR YOUR Open an account Open anaccount in minutes OVER E traordinary traordinary E 6X IMIZE

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. the NASDAQ? the mas rally, or is it already over for over already it is or rally, mas I Christ- the stolen Grinch the Has by GaryGrosschadl Downleg Shows Pending Composite Index NASDAQ CHARTANALYSIS points afteragoodupleg.Afterthe sticks. Thesecanbereliableturning candles thatengulfthepreviouscandle- able downlegs.Thesearelargebearish ing candlestickpatternsmarkingsiz- medium-term traders. be instoreaffectingshort-termand/or news isthatasignificantdownlegmay an uptrendisinplace,whilethebad highlights this.Thegoodnewsisthat and apitchforkvieworAndrewsline weekly chartshowsadefiniteuptrend, page 18 and supportbreak.Therecentbreak vance metresistanceneartheMaygap countertrend rallies.Notethatthead- the risingwedgeistypicalfor June declinesetthebearishtoneand over thepasttwoweeks.TheAprilÐ and theindexbrokelowertrendline AprilÐJune decline. AprilÐJune points to a continuation of the of continuation a to points on a number of fronts, and this and fronts, of number a on O down breaking is 225 Nikkei The by ArthurHill Down Nikkei Breaking WEDGEFORMATIONS after agood upleg. be reliableturningpoints candlestick patterns can Bearish engulfing Note thehistoryofbearishengulf- Tradable: Tradable: t’s beenagoodrunforthehigh- 2004, asFigure1shows.This tech indexsincethesummerof

Nikkei formedarisingwedge the currentadvancein n thepricechart(Figure1), • Traders COMPQ $NIKK .com (E period exponentialmovingaverage pitchfork medianlineandthe200- The largerdownsidetargetisthelower pitchfork andaprevioussupportpoint. representing themedianlineof The firstisazonebetween2300Ð2350 through. level toconfirmanegativefollow- tion butneedstodeclinebelowthe80 lator hoversinanoverboughtcondi- level. Meanwhile,thestochasticoscil- be comingoffitsownpeakfromthe70 the currentposition.■ tion, shouldadownlegdevelopfrom for anotherpossibleturnaroundsitua- movement index(A downleg. Theaveragedirectional ish candlestickpatternhasstruck. latest 450-pointrise,anothersuchbear- cator broketonewlowsinJuneandthe the Standard&Poor’s500.Theindi- price relativecomparestheNikkeito weakness overthelastsixmonths.The price chart,theNikkeishowsrelative in theovernextonetotwomonths. divergence (M (+DI) andithasflattenedout. above thepositivedirectionalindex of thechartmayhavepeaked,asitis tive strengthindex(R shows adefinitedowntrend.Therela- from peaklevels,whileitshistogram moving averagetoofferresistance bearish, andIwouldlookforthis September. Thecurrentbreakis average turnedintosupportinlate 50-day inlateJulyandthismoving The indexthenbrokeabovethe turned intoresistanceinearlyJuly. in Mayandthismovingaverage broke the50-daywithagapdown history withtheNikkei.Theindex 50-day movingaveragehasagood and 200-daymovingaverage.The low the50-daymovingaverage the Junelow. and thedownsidetargetisbelow continuation ofthepriordecline below thelowerwedgesignalsa Two downsidetargetsarepossible. MA Several indicatorshintatacoming In additiontothebreakdownson The movingaverageconvergence/ The indexalsobrokebackbe- ) near2100.Watchthesetargets See www.Traders.comformore. This articlewasfirstpublishedon12/27/2006. the signalfora top reversal. gulfed byablackbody.Itis The whiterealbodyisen- The marketistrendinghigher. Bearish Engulfing(B ACD ) showsadownturn DX SI ) lineatthetop ) alsoseemsto EE ): lower trendlineoverthepasttwoweeks. FIGURE 1:NIKKEI. the S&P500.Thepricerelativere- the Nikkeiwasnotkeepingpacewith price relativeformedalowerhighand to newreactionhighsinOctober,the to saytheleast.WhileNikkeimoved recovery offtheJunelowswasfeeble, that. FIGURE 1:NASDAQ,WEEKLY. The currentadvanceformedarisingwedgeandtheindexbroke There’s adefiniteuptrend,and apitchforkviewhighlights leader onthewaydown. gard onthewayupcouldbecome cently broketonewlowsandthelag- See www.Traders.comformore. This articlewasfirstpublishedon11/20/2006. March/April 2007 ■

STOCKCHARTS.COM TC2000.COM; TELECHART 2007

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. what to look for. look to what recent trading range. Here’s range. trading recent 100 looks poised to break the break to poised looks 100 last forever, and the NASDAQ the and forever, last FLAGSANDPENNANTS T can’t consolidation narrowing A by ArthurHill Pitch Winds UpFor The The NASDAQ 100 off overboughtconditions:corrector bought. Therearetwowaystowork points totheindexanditbecameover- bullish consolidation. trend isupandthispatternrepresentsa sent arestintheongoingtrend.Thebig are continuationpatternsthatrepre- weeks andapennantformed.These the advanceslowedoverlastfew (Figure 1).Sincemovingabove1800, March/April 2007 The Novembersurgeadded100 6((,7/,9( Tradable: OLYHRQOLQHGDLO\WUDGLQJOHVVRQ +HUH¶VZKDW\RX¶OOOHDUQLQRXU RQOLQHOLYHLQWHUDFWLYHWUDLQLQJDQGWUDGLQJ +RZWRWUDGHVXFFHVVIXOO\IXOORUSDUWWLPHDQ\WLPHDQ\ZKHUH $FKLHYHVXFFHVVLQOLYHVLPXODWHGWUDGLQJEHIRUHULVNLQJPRQH\ +RZWRVXFFHHGE\WUDGLQJOLYHRQOLQHZLWKRXUSURIHVVLRQDOWUDGHUV $VLPSOHSRZHUIXODQGSUHFLVHWUDGLQJPHWKRGLQFOXGLQJULVNFRQWURO :K\WUDGLQJ(PLQLVKDYHEHFRPHVRSRSXODU advance injustoverfourmonths tear sincemid-July,witha25% he N ASDAQ $NDX

100 hasbeenona Should theN and extendingitupfortwoweeks. lel tothelowerpennanttrendline was foundcreatingatrendlineparal- around 1860Ð1870(Figure2).This bullish. Theupsidetargetwouldbe and earlyDecemberhighwouldbe the directionofbreakout. and thenextsignalisdependenton Taken together,thepennantformed consolidation overthelasttwoweeks. decline onNovember27andthena a littleofboth.Therewassharp sistance. December highwouldmarkkeyre- signs ofafailedsignal.Theearly and thisisthefirstleveltowatchfor port breakwouldturnintoresistance, ing itdownfortwoweeks.Thesup- upper pennanttrendlineandextend- creating atrendlineparalleltothe 1730 (Figure2).Thiswasfoundby target wouldbetoaround1720Ð to furtherweakness.Thedownside would bebearishandopenthedoor would markkeysupport. first test.TheearlyDecemberlow into supportandthiswouldbethe tance, thebreakoutpointwouldturn consolidate. TheN A moveabovetheuppertrendline A movebelowthelowertrendline )5(( ■ For moreinformation visittheadindexat ASDAQ -RLQRXU)5((OLYH21/,1(VHPLQDUGDLO\#30&HQWUDO7LPH \HDU7KHUHLV12 FRQWUDFWV ILYH RQ GRZQ RU XS SRLQWV FRXOGSURILWSHUGD\SHUZHHNSHUPRQWK WZR RI PRYH $ FRQWUDFW SHU HTXDOV LQRUGHUWRWUDGHILYHFRQWUDFWV\RXZRXOGQHHGLQ\RXU )RUHDFKFRQWUDFWWUDGHG\RXVKRXOGKDYHLQ\RXUDFFRXQW7KLVPHDQV ZLWKDQDYHUDJHUDQJHRISRLQWVDGDLO\JRDORIWZRSRLQWVLVKLJKO\UHDOLVWLF 7KH(PLQL6 3LVD ASDAQ

: <28:,///($51+2:720$.(32,176352),7(9(5<'$< 100 breakresis- DWFKWKHUHDOWLPHPDUNHWDQGLGHDOWUDGLQJPHWKRGWRJHWKHU 7KHUHLVDULVNRIORVVLQWUDGLQJ

100 chose 5(*$5'/(662)<28575$',1*(;3(5,(1&( would bebullish,withtheupsidetargetabout1860to1870. advance injustoverfourmonths. FIGURE 1:NASDAQ100. FIGURE 2:NASDAQ100. /,0,7 1(:&21&(37 Traders.com/reader RQWKHQXPEHURIFRQWUDFWV\RXFDQWUDGH ([DPSOHRIGDLO\SURILWSRWHQWLDOWUDGLQJ(PLQL6 3 &RQWUDFWV RI A moveabovetheuppertrendlineandearlyDecemberhigh The NDXhasbeenonatearsincemid-July,with25% 5HTXLUHG 0LQLPXP LQWUDGLQJ,QWKLVELOOLRQDGD\PDUNHW SWSURILW 'DLO\ 7UDGHUV,QWHUQDWLRQDOFRP :HHNO\ 3URILW See www.Traders.comformore. This articlewasfirstpublishedon12/13/2006. &DOO DFFRXQW2QHSRLQW Traders 0RQW SHU 3URILW KO\ .com

METASTOCK

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. page 20 triangle has arrived. has triangle from a multimonth symmetrical multimonth a from B breakout much-anticipated The by DavidPenn Copper Cracks SYMMETRICALTRIANGLE than 20centsonoverwhelmingvol- ber, Decembercopperfuturesfellmore rived. InthefirstfullweekofNovem- had beenwaitingforhasfinallyar- ure 1. ping towardthe$2.40mark.SeeFig- down wouldprobablyseecopperslip- $4.40 area,whileadownsidebreak- would likelytakecopperfuturestothe pointed outthatanupsidebreakout gust 2006articleoncopper.Isimply I offerednopredictionwithmyAu- was restoreduponleavingit. the trendthatledintoconsolidation middle of2006wastotheupside,as metrical trianglethattookshapeinthe the mostlikelyresolutionofsym- in trendstendtoleadmoretrend.So March toapproximately$3.90byMay. saw coppermovefrom$2.20inmid- amazing rallyinthemetal,athat triangle begantotakeformafteratruly formed startinginMay2006.This metrical trianglethatcopperhad to drawattentionthesizable,sym- gust 25,2006).Inparticular,Iwanted futures (“TheCopperTriangle,”Au- It appearsasifthebreakthattraders Generally speaking,consolidations Tradable:

M ik ack inAugust,Itippedoff u ers todevelopmentsincopper Traders.com Advantageread l

a • Traders For moreinformation, visittheS&Cadindexat F o r Planet Linesand Aspects Square ofNine Siderograph Forecasts Cycle Forecasts Compatible witheSignal e

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a n y New Real-Time Version MarketWarrior 4.1 followed onepathtoprofit.TheD 2 showshowsometradersmighthave passed, Ifindshortentrytargetsusing the D In fact,bythetimeA trade wouldhaveworkedsplendidly. market closedthatdayat3.40),this proximately 3.43notwithstanding(the intraday highonOctober26ofap- more ontheextremepointrule).An ing DI+/-”fromOctober12,2006,for Working-Money.com article,“Trad- rule atapproximately3.40(seemy using J.WellesWilder’sextremepoint would havebeenfilledonOctober24 gave asellsignalonOctober23that the optimalD of downsidefortraderstoexploit.With $2.40, thenthereshouldstillbeplenty tures isworth$250). profit lower(eachcentincopperfu- 3.29, some11centsand$2,750in December copperwastradingnear movement index(D movement index/averagedirectional on thisbreakdown?Thedirectional has, verymuchworthwatching. cut and,arrivingonlargevolumeasit breakdown fromthetrianglelooksclear solidation. Onbalance,however,the of agarden-varietyrectangularcon- triangle, makingtheconsolidationmore Such aneventwouldinvalidatethe candlestick withlowsatabout2.85. point ofthetriangle,aweeklyhammer tract willfindsupportatthelowest There isthepossibilitythatcon- action inthecontractsincelatespring. that hadcontainedvirtuallyallprice boundary ofthesymmetricaltriangle ume tobreakdownbelowthelower If thedownsideobjectiveremains How mighttradershavefaredacting MI Traders.com/reader

sell signalonNovember2, MI /A DX MI /A

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confirmed ) inFigure MI look forgoing forward. (histochastic) thatmightbe levelsto screen, whichusesshiftsinthe M tober 5,2005)andthehistochastic (“B up andoverthegreenDI+liineinearlyNovember. line (ingreen).Thissellsignalwasconfirmedbythecrossing of theADXline(inblack) copper followsthroughtothedownsideafterDI-line(inred) crossedupovertheDI+ FIGURE 2:DECEMBERCOPPER,DAILY. a consolidationearlierintheyear. comes afteranextendedsidewayscorrection.Nearestsupportisatthe2.20level,from FIGURE 1:DECEMBERCOPPER,WEEKLY.Thebreakdownfromthissymmetricaltriangle tries at3.075(B those twoscreens,thereare shorten- histogram totriggerentries. Based on other screenssuchastheB OSO ,” Working-Money.com,Oc- OSO ) and3.017 ■ OSO

screen ACD The DMIprovidesasellsignalinlateOctober, _____ [2005].“B Penn, David[2006].“TheCopper S UGGESTED tage, August25. Triangle,” Traders.comAdvan- Money.com, October5. See www.Traders.com formore. This articlewasfirstpublished on11/15/2006.

READING OSO March/April 2007 ,” Working-

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. down) foralong-termsignal. ing onthesubsequentbreakout(upor one bigconsolidationandwearewait- well. Theindexsimplyremainsina this patternisasyetunconfirmed would bewellnorthof170.However, mously bullishandtheupsidetarget the prioradvance.Thiswouldbeenor- trendline andsignalacontinuationof above 143wouldbreaktheupper tion overthelastninemonths.Amove time frameandatriangleconsolida- tern atwork.Figure2showsthesame befitting tolookforanalternativepat- pattern isjustapotentialproblem,it October low(117). long astheindexremainsabove & shoulderspatternisonlypotentialas further weaknessbelow100.Thehead below thissupportlevelwouldproject The necklineslopesdownandabreak shoulder metresistancearound150. high formsthehead,andright high formstheleftshoulder,May head &shouldersreversal:theJanuary months. consolidation thatlastedthenext11 January andthenembarkedonabig tance, pointing to higher prices. higher to pointing tance, Index recently broke flag resis- flag broke recently Index the Philadelphia Gold & Silver & Gold Philadelphia the head & shoulders reversal pattern, reversal shoulders & head ure 1).$X and lookattheweeklychartfirst(Fig- L massive a for potential the Despite by ArthurHill For XAU Flag Breakout FLAGSANDPENNANTS March/April 2007 below 100. project furtherweakness support levelwould and abreakbelowthis The necklineslopesdown The patternatworklookslikeabig As longasthehead&shoulders Tradable: Gold &SilverIndex($X picture forthePhiladelphia et’s startoutwiththelong-term AU $XAU

surged above130in AU ) daily chart(Figure3),$X shorter timeframeforsignals.Onthe traders andinvestorsshouldfocusona negate thissignal. would havetomovebelow 130to in November. FIGURE 3:$XAU,DAILY.$XAUbrokeresistancearound130withasurgeinOctoberandthenpulledbacktobreak 11 months. FIGURE 1:$XAU,WEEKLY. $X ken resistanceturnedintosupport. decline formedafallingflagandbro- resistance breakinNovember.The October andthenpulledbacktothis resistance around130withasurgein upside targetisaround150and $X and reinforcessupportat130.The a continuationoftheOctoberadvance and brokeflagresistance.Thissignals FIGURE 2:$XAU,MONTHLY. Until thereisalong-termsignal, AU

bounced overthelastthreedays See www.Traders.com formore. This articlewasfirstpublishedon11/22/2006.

■ Gold surgedabove130inJanuaryandthenembarkedonaconsolidationthatlastedthefollowing Note thetriangleconsolidationoveranine-monthperiod. AU

broke AU 3 4 0REBUILT2ULES RILLIONSOF3YSTEMS 7 #O 0O 0549/52#/-054%2 &ULL &EATURED#HARTS %XTENSIVE!NALYSIS ALK &ORWARD%VALUATION 42!4! NTINUOUS3EARCH RTF For moreinformation, visittheS&Cadindexat OLIO-ANAGEMENT 4/7/2+ 777342!4!3%!2#(#/- 3 342!4%'9$)3#/6%29 ANDFUNDAMENTALANALYSIS %!2#( THELIMITSOFTECHNICAL Traders.com/reader SOFTWAREEXPLORES LIKE3TRATA3EARCH Traders .com .OOTHER • page21

METASTOCK

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. during thatsame timeframeforthe 10 yearsanda19%average return cemberÐJune periodduring thepast 16.2% averagereturnover theDe- = 9;33-924).H projected amovetoaround24(42-33 break confirmedthedoubletopand and brokesupportinJuly.The formed adoubletopearlierthisyear Hirsches foundthatthe$X both a10-andfive-yearperiod, the and lookingataveragereturnsover Amex OilIndex($X December andmid-June.Usingthe from theoilsectorbetweenmid- worth ofoutperformancethatcomes Trader’s Almanac Jeffrey Hirschintheir2006 continuation higher. continuation look for a breakout to signal a signal to breakout a for look sonal sweet spot. sweet sonal should Traders weeks. two last the the group moves toward a sea- a toward moves group the over breather a took Halliburton FLAGSANDPENNANTS O as appear stocks oil in Breakouts by DavidPenn Is Back Black Gold SECTORINVESTING L volume, high on surge big a After by ArthurHill A Rest Halliburton Takes resistance around32. in 2006.Thismovingaveragemarked age markedsupportin2005andearly In addition,the25-weekmovingaver- stock stalledoverthelastthreeweeks. top (~33)becameresistanceandthe weeks. Brokensupportfromthedouble 30 withastrongmoveinthelastfew early Octoberandbouncedbackabove page 22 Tradable: Tradable: 1). TheHalliburtonstock(H for someperspective(Figure et’s startwiththeweeklychart

market historiansYaleand tor seasonalsnotedbystock ne ofthemoreinterestingsec- • Traders OIH,VLO HAL AL .com

is thesixmonths’ OI

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had a Stock AL ) so muchresistance,H solidation andflaghighs.With this areafromtheAugustcon- addition, thereisresistancein lots ofresistancearound33.In (~42). challenge totheAprilhigh tinuation higherandtargeta flag highswouldsignalacon- ing trend.Abreakabovethe consolidation withintheongo- the flagrepresentsarestor ume surgedontheadvanceand advance andaflatflag.Vol- eight weekslookslikeasharp ure 2).Thepatternoverthelast formed onthedailychart(Fig- chart, andaconsolidation moment oftruthontheweekly as oilstockshave yettogaintheatten- level —beforemovinghigher. Insofar those approachingthe50%retracement will dosomeconsolidating — aswill have recentlynotched52-week highs that thosestocksarenearing, at,or months, thenitispossible(ifnotlikely) higher inthesestocksoverthenextsix and theTransOceansthatarelagging. are theBakerHughes,Halliburtons, are atorabovetheir2006highs,there every ConocoPhillipsandExxonthat watchlist ofoilstocks,itseemsthatfor level (Figure1).Infact,asIreviewmy climbing abovethe50%retracement many oilservicestocks—arestilljust the oilserviceH which isclosinginonits2006highs, would beexpected. move belowtheOctoberlow would formaround33anda vance. Atworst,alowerhigh retracement oftheOctoberad- for atleastapullbackor would negatetheflagandcall flag support.Amovebelow31 fail nearcurrentlevelsandbreak suring tool.Comparedtothe$X welcome one. ish secularstoryislikelytobea and equippedwithacompelling,bull- of asectorstillcomingoffbottom in ordertostartbuying,theprospect are anxiouslyawaitinganypullback overbought andtradersinvestors most recentfive As notedonFigure2, H The stockisclearlyatits If thereistobeasustainedmove Then again,itdependsonyourmea- At atimewhenmanymarketsare See www.Traders.comformore. This articlewasfirstpublishedon11/14/2006. OLDRS years.

■ AL —alongwith AL

could

has in July. FIGURE 1:HALLIBURTON,WEEKLY. resistance inthisareafromtheAugustconsolidationandflaghighs. FIGURE 2:HALLIBURTON,DAILY.HALhasnotableresistancearound33.Inaddition,thereis OI , of thepreviousdeclinebylate November. September, oilservicestocksreboundedstronglyintheautumn, retracingfully50% FIGURE 1:OILSERVICEHOLDRS,WEEKLY. HAL formedadoubletopearlierin2006andbrokesupport After fallingmorethan26%fromMaytolate March/April 2007

PROPHET FINANCIAL TC2000.COM; TELECHART 2007

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. March/April 2007 More Flexibility More Analysis More Tools More Charting More Choices ©2007 GlobalFutures &Forex, Ltd.Allrightsreserved. * Servicesoffered through GFTGlobalMarketsUK Ltd. Forex tradinginvolves highrisks,withthepotentialforsubstantiallosses,andisnotsuitableallpersons. true leadingindicator.true indicator, Foresight–A.I. predictivethese toolswithoursubscription-based and indicatorswithstandardaccounts. Combine the market withmorethan85technicalanalysistools All thetoolsyou needareatyour fingertips—analyze no need(ordesire)for any othertrading applications. track have andtrade directlyfromthecharts—you’ll capabilitiesallow youAmazingly robust to charting trailing stops, andover 60currencypairstotrade. sizes, multiple ordertypesincludingautomated at$250,smallerminimum lots deposits starting Tr tools with Chart Studio tools withChart Use oursuiteoftoolsorcreateyour own analysis advanced customizationfeatures for professionals. needs. Simpleenoughfor novice forex traders, with your software—customize oursoftware tosuityour You shouldn’thave toadaptyour trading styletofit perspective—yours. customizable RSSfeeds togetthebestmarket news sources?Addasmany asyou’d like with and Informa GlobalMarkets. Have your own favorite time news andanalysisfromDow JonesNewswires There’s noneedtoleave theplatform toview real- NEW YORK |CHICAGO |LONDON* TOKYO |SYDNEY WORLD HEADQUARTERS: ADA, MICHIGAN,USA ade themarket asyou seefit. We offer minimum Above all,Integrity. ™ ™ . , todiscover thepower ofa TOLLFREE 1.866.400.7816INTERNATIONAL 1.616.956.9273 W ORLDWIDE LEADERS INONLINECURRENCY TRADING GLOBAL FOREX TRADING, Division ofGlobalFutures&Forex, Ltd. with DealBook Discover yourpotential Unlock your tradingpotential today. BUILT TOTRADETHEWAYYOUDO. DealBook people like you have madeDealBook market. Try arisk–free demoaccountto discover why to provides you withthetradingtools you need winning platform ofchoicefor forex tradersworldwide. getmoreoutoftheworld’s largestfinancial W.FFRXCM/TRD / WWW.GFTFOREX.COM ® 360,now more thanever, ® 360 ®

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. shadow a break higher. break a shadow and recent firmness could fore- could firmness recent and Broken resistanceandtheOctober minor andsupportiscloseathand. However, thedeclinelooksrelatively enced someweaknessinDecember. Amex Gold Bugs Index hit support hit Index Bugs Gold Amex is aclearandpresentuptrend. and ahigherhighinearlyDecember.It forged ahigherlowinmid-November O the in decline December The by ArthurHill Support Index Hits The GoldBugs MACD event (andtakingthemoremodest Figure 2almostsuggests).Ineither late September(asthetrendlinein the triangleisevenlargerandbeginsin ber. Infact,there’sanargumentthat has beendevelopingsinceearlyOcto- if asortofascendingtrianglebottom weekly chartinFigure2,itappearsas started togetgoing.Lookingatthe ample ofsuchstocksthathavejust “renting”) oilstockstodoso. time forthoseinterestedinbuying(or ing consolidationmightbeanideal tion oftheinvestingpublic,anycom- higher overthenexttwomonths.H early Octoberandmovedsharply up (Figure1).Theindexbottomedin page 24 Despite thisuptrend,H A stocklikeValeroisagoodex- Tradable:

• Traders Gold BugsIndex($H n thedailychartofAmex medium-term trendisclearly $HUI .com less 35-dayE sensitivity ofM averages toincrease the I amusingdifferentmoving UI

experi- UI ), the UI M ages toincreasethesensitivityof I amusingdifferentmovingaver- 5/35 isstillmovinglower(redline). the M signal linewouldreflectanupturnin as thesignalline.Amoveabovethis E December decline. higher highandsignalanendtothe break abovethislevelwouldforgea formed around351onMonday.A start anuptrend.Thelastlowerhigh quired toreversethisdowntrendand the verylast,ahigherhighisre- up oflowerlowsandhighs.At reversal point.Adowntrendismade December declineandpickatrend ure 2),wecanalsofocusonthe the correction. this aspositiveandcallforanendto age convergence/divergence(M yet toreverseandthemovingaver- correction, thecurrentdeclinehas and thecurrentdeclinelookslikea trendline confirmsthissupportlevel. over fromthelowsofearlysummer. as wellwithpotentialresistanceleft coincide withafull50%retracement approximately 54).This58levelwould tion sizeof4plusthebreakoutlevelat projects amovetothe58area(forma- case asourexample),thetriangle Hirsch, Yale,Jeffreyandthe S E MA MA MA UGGESTED ACD Turning toanintradaychart(Fig- Even thoughthebigtrendisup & Sons. Trader’s Almanac2007 Hirsch Organization[2006]. ACD ). Thewhitelineisthefive-day ). of theM ACD

(five-day E (five-dayE See www.Traders.comformore. This articlewasfirstpublishedon12/1/2006. See www.Traders.comformore. This articlewasfirstpublishedon12/14/2006.

and inH ACD

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5/35 andthisacts ■ MA UI . Iwouldtake

MA less 35-day , JohnWiley ACD Stock ■ ) break abovethis levelwouldsignalanend to theDecemberdecline. FIGURE 2:GOLDBUGSINDEX,INTRADAY. FIGURE 1:GOLDBUGSINDEX,DAILY. stocks likeValerowillbeapartofthegroup’soverallmovehigher. stock’s recentmovetowardthe38.2%retracementlevelwillbeonetestofwhether 52-week highs,otherssuchasValerohaveyettotrulygetmovingtheupside.The FIGURE 2:VALEROENERGYCORP.,WEEKLY. Here, themedium-termtrendisclearlyup. The lastlowerhighformedaround 351.A Although oilstockslikeExxonaremaking March/April 2007

TC2000.COM; TELECHART 2007

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. summer of2005. 2006. Thatcorrectionhasretraced fully50%ofgold’sadvancefromthelows was interruptedbyasecondary orintermediatecorrectioninthesecondhalfof FIGURE 1:GOLD,CONTINUOUSFUTURES, WEEKLY. PROPHET FINANCIAL true thatthereareoftenmultiple all aspectsofthesedefinitions,itis days.” three weeks—usuallylessthansix shorter duration,“rarelyaslong which areunimportant,”ofeven reflect the“day-to-dayfluctuations trends, whichtheauthorssuggest months, andrarelylonger.”Minor last “fromthreeweekstoasmany major orprimarytrendandtendto Secondary trendsruncountertothe and “mayrunforseveralyears.” classification, lastatleastoneyear Major orprimarytrends,pertheir or refer tothesethreedegreesasmajor Dow theorists,EdwardsandMagee moves inthreedegreesoftrend.As ing thepriceofstocksingeneral,” Magee notethat“themarket,mean- authors RobertD.EdwardsandJohn f term breakout mean for gold going gold for mean breakout term diate term ... what does a near- a does what ... term diate GOLD&METALS W interme- bearish long-term, Bullish by DavidPenn T Gold’s Three March/April 2007 orward? rends Whether ornotyousubscribeto Tradable: primary, secondary, Analysis OfStockTrends, trading primer, riting intheirclassicstock GC and Technical minor. level thatwaspenetratedonan found supportatthe575level—a that gold(basiscontinuousfutures) the beginningofNovember.Theway crossed abovethebearishDI-lineat the waybullishDI+linehas 2006 (Figure2).Wecantellthisby hood ofasignificantlowinOctober indicator acknowledgesthelikeli- even deepercorrection? of anyconsequenceandleadtoan will endwithoutsettinganewhigh correction, ashort-termmovethat movement withintheintermediate simply aminortrend,short-term gan inAugust2005?Oristherally sumption ofthebullmarketthatbe- MayÐOctober correctionandthere- sents. Doesitmarktheendof from theOctober2006lowsrepre- ers rightnowiswhattheadvance advance justmentioned. mately 50%ofthepreviousprimary if youwill)thatretracedapproxi- or intermediatecorrection(a“wave,” 2006, goldexperiencedasecondary 2005. FromMay2006untilOctober that beganatleastasearlyAugust in theformofabullmarketgold There istheprimary,long-termtide markets isverymuchineffecthere. “tide, wave,andripple”aspectof Edwards andMageedescribeasthe 1), forexample,itisclearthatwhat weekly chartofgoldfutures(Figure in duration.Lookingatathree-year as long,intermediate,andshortterm these forcescanoftenbeclassified forces atworkinamarketandthat The weeklydirectionalmovement The questionformostgoldwatch- Gold’s primaryorlong-termuptrend in thenearterm.Inaddition,past DI+ andDI-thatassureshigherprices yet thesortofseparationbetween weekly scaleisbullish,therenot While directionalmovementonthe “weak hands”hadbeenshakenout. significant oneandthatmostofthe assured thatthecorrectionwasa those longgoldcanataminimumbe correction couldretraceevenmore, previous advance.Whilearenewed est pointretracedfully50%ofthe MayÐOctober correctionatitslow- It isalsoworthmentioningthatthe a sourceofsupporttobemonitored. beneath thisareamakesthe575level The factthatgoldhasnotyetclosed October —alsoseemssignificant. intraweek basisinJuneandagain of resistance. other potentialsource 669 liesaheadasan- the earlyJulyhighof of 650.Beyondthat, minor highjustnorth above themostrecent tures willhavetorally ing months,goldfu- to arriveinthecom- higher goldpricesare October lows.If extends fromthelate week trendlinethat shorter-term, six- down belowa gold futuresbreak few weekshaveseen the spring2006peak. coincides withpricesbreakingoutabovethedowntrendlinethatextendsdownfrom the crossoverofbullishDI+line(ingreen)abovebearishDI-red) gests thatgoldislikelytoheadhigheroverthenextfewmonths,atleast.Notehow FIGURE 2:GOLD,CONTINUOUSFUTURES,WEEKLY. There isabearishcasetobemade. ■ PRIVATE TUTORING •FREETRIAL Intermediate Trading andLong Term Trading. Inner-Daytrading •Speed-Trading • be taughthowtoMakeMoney: Daytrading• In thisExclusive Trading Course you’ll Precise &canbe Traded Electronically All Trading Methods Taught are Powerful, Gold •T-Notes •GrainsETC E-MINI S&Ps•StocksCurrencies Te Chicago Board ofTrade Membercan ach You toMakeMoneyTrading: WWW.JONATHONSTONE.COM Mr. Stone•847-295-0056 Edwards, RobertD.,andJohnMagee S UGGESTED duration. and shorttermin as long,intermediate, can oftenbeclassified market andtheseforces forces atworkina There areoftenmultiple Bassetti, ed.SaintLuciePress. Stock Trends [2001]. Weekly directionalmovementsug- See www.Traders.comformore. This articlewasfirstpublishedon12/21/2006. Technical AnalysisOf Traders

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. PROPHET FINANCIAL pated the reversal in oil stocks. oil in reversal the pated histogram and stochastic antici- stochastic and histogram REVERSAL October. and Septemberbeforebottomingin crude oilfuturescollapsedoverAugust 70s inthesummerof2006,price TURES, DAILY. FIGURE 1:CRUDEOIL,CONTINUOUSFU- B MACD the in divergences Negative by DavidPenn Crackin’ Crude suggested thatlowercrudeoilprices page 28 Tradable: ack inthesummerof2006,I Traders.com Advantage wrote anarticlefor

• Traders After tradinginthehigh CL,OIH .com that in thestochasticandM with veryclear-cutpositivedivergences sured bytheO oil servicestocks(again,asmea- pate theendofamarketmove.With mirrored bydivergencesthatantici- ginning ofamarketmoveareoften divergences thatannouncethebe- cember. their OctoberlowtopeakinDe- — oilstocksralliedsome25%from H But asmeasuredbytheoilservice cember advance,rallyingsome10%. tively modestintheirOctoberÐDe- (basis continuousfutures)wererela- began movingupsharply.Oilfutures oil stocksinparticulartookthecueand Figure 1.) struggling toremainabove$58.(See tures (basiscontinuousfutures)were needed tobeawareof. anyone bettingonhigheroilprices futures werehintingatweaknessthat weekly anddailychartsofcrudeoil mid- tolow70s.ButIwarnedthatboth At thetime,crudeoilwastradingin “Cracks InTheCrude”fromJuly25). were increasinglylikely(seemy OLDRS As oftenisthecase,however, Crude oilbottomedinOctober,and Three monthslater,crudeoilfu-

— whichsignaledthebottom IH ), negativediver- ACD

histogram moving averageconvergence/diver- It wasDecember18whenboththe gences appearedbymid-December. before thecorrectionhasrunitscourse. depth ofthehistogramsuggeststhat132level,ataminimum,willbebroken and lowerhighsinthestochasticanticipatedthiscorrectionoilservicestocks.The FIGURE 2:OILSERVICEHOLDRS,DAILY. a-vis theO level —beforeputtingonanewshortpositionvis- be wisetowaitforabounce—ideallyupthe138 points tofurtherdownside.Forthisreason,itmay sooner thanlater(seeFigure2).ButiftheO guise oftheforementionedprofit-taking—comes would notbesurprisingifthebounce—in of theadvancefromOctoberclosinglow,soit 132 arearepresentsroughlya61.8%retracement O begun. “Black (Gold)Monday,”forthedelugehadjust cerned, December18mightaswellhavebeen a higherhigh.Asfarasoilbullswerecon- break, thesizeof M profit-taking giventhespeedanddepthof on January3.Andwhilethereislikelytobesome or fourtradingsessionsbeforethebigbreakdown that thedeclinestalledinthisareaforroughlythree level. ■ height), aswellbeingnearthe 78.6%retracement from theDecembertopping pattern (150to138in up withbothaswingruleprojection downward level ispotentiallysignificantinsofarasitmatches for asteeperdeclineto,perhaps,the126level.This not holdupatthislevel,tradersshouldbeprepared IH that anticipatetheendofamove. move areoftenmirroredbydivergences that announcethebeginningofamarket As oftenisthecase,divergences Where mightthecorrectionfindsupport?The The divergencesprovidedforashortentryinthe

near 141.Ifyoulookcarefully,cansee Negative divergencesintheMACDhistogram IH as theO chastic completedlowerhighs,just gence (M . IH See www.Traders.com formore. This articlewasfirstpublished on1/4/2007. ACD wascomingdownfrom ACD ) histogramandsto-

histogram clearly March/April 2007 IH

does

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. tions atroot,andthemethodfor most chartpatternsareconsolida- handle shapesecond.Essentially, tion first,withageneralcup berÐearly Novemberasaconsolida- pler tack,consideringthelateOcto- ing work.Here,Itakeamuchsim- with handlepatternsisprettyamaz- and “picktallcups”). tions suchas“cupsinabullmarket” ent cupwithhandlepatterns(condi- able opportunitiesfromamongdiffer- when tryingtogaugethemostprofit- ditions thattradersshouldlookfor Chart Patterns wrote inhisbook tern expertThomasBulkowski,who extensively intheworldofchartpat- the holiday season begins. season holiday the more upside for the S&P 500 as 500 S&P the for upside more F suggests pattern chart classic A by DavidPenn Handle Cup With The S&P500’s CUPWITHHANDLE Stocks. O’Neil of ary stocktraderandinvestorWilliam the keypatternsrecognizedbylegend- end oftheyearapproaches. to sendtheS&P500evenhigheras gress. Anditmaybepowerfulenough enough tohelptipthebalanceofCon- 14 tradingdays.Butitwaswell-timed pattern isshortterm,consistingofabout pattern intheautumnof2006.The carved outaclassiccupwithhandle same asthebadnews. ably missedit.Thegoodnews: bad news.Thenews:Youprob- March/April 2007 Bulkowski’s quantificationofcup The cupwithhandlepatternisoneof The Standard&Poor’s500has Tradable: tion, I’vegotgoodnewsand autumn stockmarketcorrec- or thoselookingforthegreat

This patternwastreatedmore How ToMakeMoneyIn $SPX about anumberofcon- Encyclopedia Of 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 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 O’Neil, WilliamJ.[1988]. S the M screen comeinpartfrompullbacks sued. Buysignalsinthehistochastic ing dayswhenbuysignalswereis- tic) withthetwobluearrowsindicat- [M average convergence/divergence the histochasticscreen(themoving this cupwithhandle?Figure2shows near-term pricetargets. investors withagoodsenseoflikely respectively, providestradersand bottom ofthepattern/consolidation, downs) thatamountfromthetopor subtracting (fordownsidebreak- and adding(forupsidebreakouts)or tern/consolidation atitswidestpart cases, takingthewidthofpat- cific typeofconsolidaton.Inmost and similar,regardlessofthespe- dation isoftenquitestraightforward market breaksfreefromtheconsoli- projecting pricemovesoncethe December. late Novemberandthefirsthalfof that islikelytotakeplacebetween eying forpositionthebullrun for somelightprofit-takingandjock- picion isthatthisanoptimaltime short weekofThanksgiving.Mysus- how themarketcomesinduring day). and addedtothehighofsignal range ofsignaldaydividedbytwo November 14(longentrytarget= and 10wouldhavebeenfilledon trendline ormovingaverage). as theclosebeingaboveasignificant other bullishconditionsareintact(such the “-3.00”session—assumingall buy signaliscreatedasoftheclose then movesto-3.79,-3.00,a histogram is,forexample,at-2.99, UGGESTED How couldtradershaveexploited It willbeworthwatchingtosee Those buysignalsareNovember6 ACD Hill. Make MoneyinStocks,McGraw- ACD ] histogramand7,10stochas- See www.Traders.comformore. This articlewasfirstpublishedon11/21/2006.

histogram. Sowhenthe ■

READING How to FIGURE 2:S&P500,DAILY. a breakoutlevelof1390. projects toanupsideofatleast1420,givenaformationsizenearly30pointsand FIGURE 1:STANDARD&POOR’S500,DAILY. during themarket’sbreakoutfromhandle. handle formation’sdevelopment—onelateintheformation ofthecupandother Two buysignalsweregeneratedduringthecupwith The cupwithhandlepatternintheS&P500 Traders .com • page29

PROPHET FINANCIAL

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. TRADESTATION lately. provided some wrong signals wrong some provided quite rare and usually reliable, has reliable, usually and rare quite CANDLESTICKCHARTING however, didnot presentoptimalcharacteristics. FIGURE 3:WAT,DAILY. by theimpressivewiderangingdayatpoint6. FIGURE 2:MNST,DAILY. part, therisingthree)representsatypicalcontinuationpattern. FIGURE 1:FALLINGVS.RISING. is which pattern, candlestick This by PaoloPezzutti Method The Falling Three page 30 Tradable: FALLING THREEMETHOD

• Traders MNST,WAT,FII .com Here, thestockprintedanicepatternthat,however,wasnegated In addition,thisstockprinted a failureofthepatternwhich, This five-candlespattern(herecomparedwithitscounter- At thatpoint,youobserve: The markethasbeeninadowntrend. site (Figure1).Let’slookattherules. method” patternisbasicallytheoppo- T ■ ■ also twoormorethanthree.Their should bethree,buttherecan ably withawhitebody.There Alongblackcandle A seriesofsmallcandles,prefer- RISING THREEMETHOD stick pattern.The“risingthree bearish continuationcandle he “fallingthreemethod”isa Note, however,thatthelast falling threemethodpattern. (WAT) lastweekprintedthe formation. to theupsidenegated pressive widerangingday At point6,however,anim- that resumesthedowntrend. displays alongblackcandle trace muchofthefirstdowncandle. three candlesdidnotmanagetore- (points 2,3,and4).Notethatthe by threecountertrendsmallcandles printed alongblackcandlefollowed ster Worldwide(MNST)atpoint1 rienced afailureoftheformation. stocks thatdevelopedthepatternexpe- reliable, butlastweekmostofthe ongoing downtrend. of thebullsandconfirmation the patternrepresentscapitulation downtrend resumes.Thelastdayof the upside,bullsgiveupand prices donotprogresssignificantlyto days oflowrangeandvolumewhere than theimpulsecandle.Afterafew ever, areunabletobringpriceshigher pause inthedowntrend.Bulls,how- expansion tothedownside,printa short pennant. pattern issimilartoabearishflagor the smallcountertrendcandles.This black candlesshouldbehigherthan formation. FIGURE 4:FII,DAILY. the marketshouldcontinuelower. close. Afterthislastblackcandle, than thefirstbigblackcandle’s countertrend barandthecloselower opens withinthebodyoflast ■ session’s range. candles remainwithinthefirst big blackcandle.Thecountertrend high isnotabovetheopenof In Figure3,WatersCorp. Friday’s session(point5) In Figure2,youcanseethatMon- The patternisusuallydeemedas The conceptisthatprices,afteran The volumeofthefirstandlast

The lastcandleofthepattern Another failureforthepattern. At point6atrenddaynegatedthe candle atpoint6,alsointhiscase, confirmed thedowntrend.Thenext dition, thelastcandleofpattern would movetothedownside.Inad- candle indicatedclearlythatprices impulse tothedownsideoffirst 3 and4displayedablackbody.The (FII) printedapatterninwhichpoints the patternandproducingaloss. prices reactedtotheupside,negating downside. Thenextdayatpoint6, displayed easeofmovementtothe date tobetradedasthestockhad any case,thepatternwasagoodcandi- within thepreviouscandle’sbody.In tion. Inaddition,theopenwasnot than thepreviousbarsofforma- manage toclosesignificantlylower candle ofthepatternatpoint5didnot In Figure4,FederatedInvestorsB into accountbytraders.■ bility ofalossmustbetaken reliable, failureandthepossi- candlestick patternisusually the toppriorities.Althoughthis negated thepattern. Risk controlmustbeoneof See www.Traders.comformore. This articlewasfirstpublishedon12/8/2006. March/April 2007

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. March/April 2007 Tr Give VectorVest yourmanaging portfolio. today. atry Take theguesswork outof SellandHold recommendations day. onmore than13,500stocks every Buy, W n elyqikhl?TyVcoVs.Tehg rft aeyoine,investment toolthatgives clear safety-oriented, ant really quickTry help? Thehighprofit, VectorVest. y VectorVest only $9.95.Call1-888-658-7638 tosignuporgo towww.VectorVest.com/tdr for 5weeks, THAT’S NOT THE ONE A MYTH. PICK Easter Bunny. guesswork outofpickingstock. Dr. BartDiLiddo’s VectorVest: T akes theemotionand EOEYUIVS,CEKVECTORVEST. CHECK YOUINVEST, BEFORE Traders .com • page31

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. page 32 b I suggests pattern chart classic A by DavidPenn T Handle For A Cup With CUPWITHHANDLE continuous futures,Figure2).Since the 10-yearslipfrom120to104(basis back inthesummerof2003thatsaw ways bearmarketinbondsthatbegan 2006, thelowpointofalargelyside- sury notebottomedinthesummerof angle (Figure1).The10-yearTrea- ascent appearstobeanascendingtri- est rate)thatbondsprovide. rity ofthecoupon(thatis,inter- tors movetowardtherelativesecu- economic growth.Assuch,inves- inflation mightbesignalingflagging suggest afearthattheabsenceof tionary expectations.Buttheyalso bonds oftenreflectadeclineininfla- bond marketitself.Bullmarketsin ently, isinthebullishnessof bond market?Theevidence,appar- tell therearenervousnelliesinthe the summerof2006.Buthowcanwe the rallythey’veexperiencedsince pricing inapositivefuturebydintof uities marketshigher. doubt anddisbeliefthatpowerseq- a steadymeasureoftherequisite market instocks,nodoubtproviding of sortshascontributedtothebull than enthusiastic.Thisdivergence while bondsare,toputitmildly,less ullish times for bonds. for times ullish reasury Notes reasury The currentvehicleofthe10-year’s We caneasilyseehowstocksare www.oexoptions.com Tradable: t hasbecomeapopularrefrainin having asifthebestisyettocome, financial circlesthatstocksarebe Daily Signals Daily Re

• Traders TYH7,TY More info:Traders.com/reader al Trading .com E increasingly upward10-and50-week trendline, withthesupportof Successful penetrationofthis 2003Ð06 bearmarketinthe10-year. downtrend line,onethatreflectsthe force atestofthatlong-term as aninitialupsidetarget.Thiswould in Figure1projectstothe110.5area come. Theascendingtriangleshown writing, allareprofitabletrades. the B nals, fromT until November24.Twolatersig- vember 17at108.74thatwasn’tfilled gram) producedabuysignalonNo- just astheT duced abuysignalonOctober26 movement index)screenthatpro- movement/A signal camefromthedirectional March 2007T-note.Theearliestbuy already givenbuysignalsinthe more ofatrendratherthanreversal. consolidations intrendstendtolead This isbecause,generallyspeaking, price actionoverthepasttwomonths. has containedtheMarch10-yearnote’s to considertheascendingtrianglethat text ofthesehigherlowsthatweneed November. Itisintheimmediatecon- monthly lowsuptoandincluding moving steadilyhigher,makinghigher that 2006bottom,the10-yearhasbeen the bondmarket. significant reversaloffortunesfor November 22forB vergence/divergence [M relies onthemovingaveragecon- day. Thehistochasticscreen(which (E day exponentialmovingaverage signals (November21fortheT filled thedayafterrespective both atanentrypointof108.50,were MA And theremaybemoreprofitto Most ofmydailyscreenshave MA See www.Traders.comformore. This articlewasfirstpublishedon11/29/2006. , couldbethebeginningofa OSO ) thatwasfilledthefollowing

screen onNovember21, YH RIX DX 7 closedabovethe20-

on November20and

(average directional ■ OSO ). Asofthis ACD ] histo- RIX , anticipates aninitialmovetoashigh110.5shouldthebreakouthold. October andNovember,theMarch10-yearhastracedoutanascendingtrianglethat FIGURE 1:MARCH200710-YEARTREASURYNOTEFUTURES,DAILY. year bearmarket. view, itisclearthatthecurrentrallyinbondsmarket’slatestattempttobuckathree- FIGURE 2:CONTINUOUS10-YEARTREASURYNOTEFUTURES,WEEKLY. Taking alonger-term Over thecourseof March/April 2007

PROPHET FINANCIAL

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. March/April 2007 June low,the50-daymovingaver- 10-year T-noteyieldbrokebelowthe take toreversethisdowntrend. tion. Third,Iwillshowwhatitwould tern thatwouldconfirmthisassump- I willshowabearishcontinuationpat- shows anexistingdowntrend.Second, will showthatthebulkofevidence ation untilprovenotherwise.First,I the currenttrendandbetonacontinu- My goalistoestablishthedirectionof move lower for interest rates. interest for lower move reversal, and the odds favor a favor odds the and reversal, months but remains short of a of short remains but months f T yield note Treasury 10-year The by ArthurHill T Long-Term Rates HEAD&SHOULDERS ound support over the last two last the over support ound rending Lower On thepricechart(Figure1), Tradable: http://store. S Get theexactinformation You’ve wantedtobuysingle articles fromS&C’sarchives TOCKS you wantonlineatthe place untilprovenotherwise. sury noteyield($T he trendforthe10-yearTrea- • • soonastransactionisapproved • • • The S&COnlineStore: — andnowyoucan! OnlineStore. FulllineofS&Cproducts Fileavailabletoyoufordownloadas PDFversionsofpastarticles Prices startaslow$2.95 Convenient credit-cardtransaction $TNX &C OMMODITIES Traders NX ) isin .com day movingaveragetoestablishadowntrend. FIGURE 1:10-YEARTREASURYNOTE. lasted around12months.Thiscrossis in earlyOctober2005andtheuptrend October. Thelastcrossoveroccurred moved belowthe200-dayinearly weakness. Inaddition,the50-day low andthissupportbreakshows have adowntrendwithoutlower to establishadowntrend.Youcannot age, andthe200-daymovingaverage 1 (800)695-6188 www.TradersCoach.com TRADING DEMODISK! Order your in action! software ART and seethe CD-ROM today ® trading The 10-yearT-notebrokebelowtheJunelow,50-daymovingaverage,and200- FREE CD-ROM ber, theheadinOctober,and left shoulderformedinlateSeptem- continuation variety(Figure2).The like asmallhead&shouldersofthe months, andthepatternatworklooks 45.40 (4.54%)overthelastthree have furthertorun. less thantwomonthsoldandcould $T FREE NX

established supportaround to rise?$T scenario otherwiseandexpectrates a movewouldbebullishforbonds. rates impliesariseinbondsandsuch ness toaround42.5.Adeclinein ation lowerandprojectfurtherweak- below 45.40wouldsignalacontinu- right shoulderinNovember.Amove What wouldittaketoprovethis NX

established resistance Traders .com • page33

TC2000.COM; TELECHART 2007

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. May-July highs. be toaround51.5oratestofthe bottom andtheupsidetargetwould The patternatworkwouldbeadouble to reversethecurrentdowntrend. to holdsupportandbreakabove48.5 The 10-yearT-noteyieldwouldhave and the200-daymovingaverage. around 48.5fromtheOctoberhigh page 34 stocks. bility of a move lower for retail for lower move a of bility 2006 holidayseason: an interestingpointaboutretailinthe money manager)BarryRitholzmade retail HOLDRS hints at the possi- the at hints HOLDRS retail HEAD&SHOULDERS O the in consolidation autumn An by DavidPenn In Retail? Shoulders Top A Head&

Retailers willbediscounting,andwhat ing hasbeenhowwidelyanddeeply One oftheissueswehavebeendiscuss- visit Tradable: Does Your CurrentCommodityBrokerOffer: • • • -Cutting-Edge Trading Platforms? • • • highly competitiverates. traders withcutting-edgetechnologyandbackupsupportat Field FinancialGroup(FFG)hasbuiltitsreputationbyproviding Don’t Trust Your FuturestoJust Any BrokerageFirm! FREE SubscriptiontoMonthly Trader Update Letter

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ALL Pit&ElectronicU.S.FuturesOptions Markets? Online Tradingwith: IRA (ROTHand Traditional) Accounts? Deeply DiscountedCommissions? If youanswered -Real Time QuotesandCharts? -Backup OrderDesk? -Professional HelpDesk? erbal Trading? www.fieldfinancial.com FIELD

ver at“TheBigPicture,”one pose” weblogs,blogger(and of myfavorite“generalpur • Traders See www.Traders.comformore. This articlewasfirstpublishedon11/20/2006. Futures andoptionstradinginvolvesriskofloss. for your More info:Traders.com/reader RTH ■ .com NO FREE Starter’s Kitand FREE Starter’s Financial Group to anyoftheabovequestions

or call 800-800-6304 retail H mation ofahead&shoulderstopinthe tation seemstohaveincludedthefor- — seemstosupportthatidea. the sidewaysmovementinretailstocks this pricecutting—asrepresentedby stores. Themarket’sinterpretationof only waytobringshopperstheir who feelasifsizablepricecutsarethe thing lessfabuloustothecompanies holiday shopper,ittendstomeansome- cutting —isawonderfulthingtothe cutting —particularly“panic”price creasingly understandable.Whileprice retail stocks—asagroupisin- pressure forQ4profitmargins. ing updramatically.Thiswilllikelybe codes showsthatdiscountingisramp- and mortarcouponsonlinesavings broad. Ourquicksurveyofbothbrick cutting isthattheyarebothdeepand it meanstotheoveralleconomy. FIGURE 2:10-YEARTREASURYNOTE. Specifically, themarket’sinterpre- With thatbackdrop,thebehaviorof The mostrecentreviewofprice OLDRS

(Figure 1).Atthispoint could seetheR successful breakdown points) issuchthata proximately five size ofthepattern(ap- them (October).The extends abovebothof right), anda“head”that ber comprisingthe virtually allofNovem- the leftshoulderand September makingup (the lastthreeweeksof developed shoulders line at96,twowell- touches oftheneck- formed, withmultiple tern isalmostperfectly (December 1),thepat- TH

fall The 10-yearT-noteappearstohaveformedasmallhead&shoulderspattern. gust, theR that extendsfromthelowinlateAu- sider, forexample,usingatrendline from thevery bottomoftheretail reversal setup.Ifwecasta trendline that supportlevelinthe1-2-3 trend neckline wouldalsobeaviolation of respectively. Abreak,then, below the and resistancelevelsat96 and 100, setup hashelpedestablishkeysupport trend reversalsetupinNovember.This happening intheretailH plimentary waystolookatwhatis move. to aslow91inaninitialdownside tion patternthatresemblesahead&shoulderstop. in AugustandearlySeptember,theretailHOLDRS(RTH)slippedintoaconsolida- FIGURE 1:RETAILHOLDRS,DAILY. There areanumberofother,com- TH

has movedintoa1-2-3 OLDRS After bottominginJulyandmovingstronglyhigher . Con- R final dayortwoofNovember.Ifthe intersects thesupportlineat96in we getadifferenttrendline—onethat ¥ TheBigPicture,http:// S for anend-of-the-yearcorrection. ent levelsthatretailstocksareheaded have validationonatleastthreediffer- longer trendline,thenthebearswill H TH UGGESTED OLDRS bigpicture.typepad.com/

does notfindsupportonthis

bull marketinmid-July,then See www.Traders.com formore. This articlewasfirstpublishedon12/12006.

READING March/April 2007 ■

PROPHET FINANCIAL

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. term support,around80-81. cline andthedownsidetargetislong- signals acontinuationofthepriorde- last fewmonths.Thissupportbreak support withasharpdeclineoverthe wedge andtheindexbroke ber. Theadvancetracedoutaslight then bouncedbackabove87inOcto- dex declinedfrom92.63to83.60and current downtrend.TheUSDollarIn- tance be around? be tance bigger trend is down—will resis- down—will is trend bigger ov of firming and looks ripe for an for ripe looks and firming of T signs shows Index Dollar US The by ArthurHill Greenback Bounce For The An Oversold RSI March/April 2007 www.winningedgesystem.com Even thoughthelong-termtrendis ersold bounce. However, the However, bounce. ersold Tradable: Comprehensive manualand coaching. Weekend andlive Professional traderteaches Winning EdgeS&P cent breakdownaffirmsthe picts thebigtrendandre- he weeklychart(Figure1)de- 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 $DXY Precise, Simple T rading System & Profitable the indexand50inR oversold bouncetofailaround84.50in 50. Takentogether,Iwouldexpectan conditions withabouncebacktoaround D mentum resistancetopredictwhere can identifypriceresistanceandmo- downtrend, theR to stallorreversearound84.50.Ina trendline andIwouldexpecttheindex further confirmedbytheOctober into resistance.Thisresistancelevelis chart, brokensupportat84.50turns expected tofail.Butwhere? against thebiggertrendandthenare trend down,oversoldbouncesare oversold. However,withthebigger or evenabouncewhenconditionsare traders shouldexpectsomefirmness ered oversoldwhenitisbelow30,and (Figure 2).Thisoscillatorisconsid- below 30forthefirsttimesinceMay wait fortheR tance around50.Therefore,Iwould day relativestrengthindex(R created oversoldconditionsasthe15- way. TheOctober-Decemberdecline rallies andoversoldbouncesalongthe down, therearelikelytobecountertrend XY Using thepricechartandR

is expectedtofail.Ontheprice See www.Traders.comformore. This articlewasfirstpublishedon12/12/2006. SI

to alleviateitsoversold SI

often meetsresis- T 1.800.972.3343 Call todayforfree information: them andCOLLECTpremium? Why buyoptionswhenyoucansell Who doyouthinkmakesthatmoney? OPTION CREDITSPREADS SELL S&P500 SELL S&P500 rading futuresandoptionsinvolvesrisk. Trade withriskcapitalonly. Collection ofpremiumdoesnotmeanretentionpremi Don’t buyoptions...Selloptions$25,000 minimumtostart SI . ■ SI ) moved LOSE MONEY... BUY OPTIONS MOST PEOPLEWHO how youcanpotentiallybenefitfrom: With ourpremiumprogramlearn The optionsellers,ofcourse. SI , we Flat markets Markets withlittleconcernfordirection Options expiringworthless FIGURE 2:USDOLLARINDEX,DAILY. downtrend. FIGURE 1:USDOLLARINDEX,WEEKLY. conditions intheRSI(consideredtobesowhenitdipsbelow30). PERIOD! The October-Decemberdeclinecreatedoversold The recentbreakdownaffirmsthecurrent TRADER'S EDGE Traders um. .com • page35

TC2000.COM; TELECHART 2007

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. the S of about27bySeptember2004.Slowlyandfitfully, 2004, thesemiconductorH semiconductor stocks.Afterpeakingat45inearliest declines tokeeptradersandinvestorsinterestedin page 36 vided enoughstrongralliesandclear sideways bearmarketsthathavepro- the firstweeksof2004.SeeFigure1. 1-2-3 trend reversal setup. reversal trend 1-2-3 wor as the semiconductor HOLDRS semiconductor the as F W by DavidPenn Semiconductors Sideways REVERSAL aiting for signs of directionality of signs for aiting To besure,ithasbeenoneofthose Tradable: ks its way through a potential a through way its ks MH have beeninabearmarketsince spective, semiconductorstocks rom acertain,long-termper- A TrendisaTerrible

• Traders rallied toalittlemorethan39inthefirst DON’T MISSTHE NEXT S ECTOR S ECTOR S ECTOR SMH Online atwww.stockmarketstore.com ADXcellence—Power Trend Strategies .com Sign upfortheSanDiego, June24,2007seminar. Thing ToWaste Go towww.stockmarketstore.com fordetails. For moreinformation, visittheS&Cadindexat Or Call702.361.5161today! OLDRS By Dr. CharlesB.Schaap

(S Order ADXcellence MH ) felltoalow diate-term tradingopportunitiesinsemiconductorstocks. ways movementinSMHhasprovidedpreciousfewinterme- FIGURE 1:SEMICONDUCTORHOLDRS,WEEKLY.Thelargelyside- “The mostexcellentbookI’veeverreadon trading...the authorheldnothingback.” “If onewishestobeatrader...ADXcellence must beatthetopoflist.” “This bookisbrilliant...oneofthebest ADXcellence SEMINAR books Ihaveread.” “Serious (traders)willfind ADXcellence...well worththecost.” level byautumn. summer of2006beforebouncingbackuptothe36 moved downward,slippingbackbelow30inthe weeks of2006.Sincethen,semiconductorshave Traders andinvestorslookingatsemiconductor Traders.com/reader !

PROPHET FINANCIAL reversal and,potentially,atestoftheyear-to-datelows. mark thecompletionofthirdstage1-2-3trend a 1-2-3trendreversal,closebelowtheNovemberlowswill FIGURE 2:SEMICONDUCTORHOLDRS,DAILY. Such adecline,clearly,wouldfindtheS order toproduceadownsidetargetofabout29.5. subtracted fromtheconsolidationlowof32.50in then thosesamethreepointswouldmostlikelybe October. ShouldtheS approximately threepointsatitswidestpointin pattern thatbeganinSeptember,onemeasures failure, theS reversal). Allthatremainsistoseeif,following new highinNovember(the“2”the1-2-3trend sal) andfailedtorestoretheprevioustrendwitha October trendline(the“1”inthe1-2-3trendrever- The S market (theonethatbeganin2004)mightsuggest. bit ofaprecariouspositionastheirlonger-termbear trend reversalthatsemiconductorstocksareinevery however, wecanseethroughthelensof1-2-3 find supportnearthe32.50level.Atsametime, run intoitsfirstsignificantcorrectionbutmanagedto a nascentbullmarketinsemiconductorstockshas point ofviewthelastfewmonths,itappearsasif an uptrendfromabottomjustsouthof30.Fromthe stocks inlate2006canseetheimmediatecontextas S to projectanupsidethe37.5Ð38areashould ously testthe2006lows. the entiretyofitsJulyÐOctoberadvanceandseri- as thatlevelmarksthespring2006highsinS area wouldfinditselfmeetingstiffresistanceinsofar The S have seriousrepercussionsforsemiconductorstocks. correction thanhasbeenthecasesofar. the 1-2-3trendreversalandsetstageforalarger break lownear32.5.Thiswouldrepresentthe“3”of the 2006lowswouldbeexceptionally bearish.■ bullish forsemiconductors, just astheviolationof breakout beyondthatlevelwould beexceptionally 2006 highextendstoabout 40.5).Certainlyany MH The sameconsolidation,ofcourse,couldbeused Failure tofindsupportnearthe32.50levelcould

break outratherthandown.Arallytothat MH MH

chart inFigure2showsaconsolidation has brokendownbelowthemainJulyÐ MH

will takeoutthepost-trendline MH See www.Traders.com formore. This articlewasfirstpublished on11/30/2006.

break downbelow32.50, Two stepsthrough March/April 2007 MH

retracing MH

(the

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. further strength. further current uptrend and project and uptrend current CHANNEL LINEARREGRESSION highs this week to affirm the affirm to week this highs T new to broke Index Banking The by ArthurHill Breakout A Banking second correction formedafallingprice breakout at112extendedto 115.The tion formedafallingwedge andthe OctoberÐNovember. Thefirst correc- again inSeptember,thencorrected in in July,correctedAugust, surged tance inDecember.Theindexsurged dex isanimportantmarketgauge. 500. Needlesstosay,theBankingIn- nance sectorgoes,sogoestheS&P so goesthefinancesector.Asfi- dard &Poor’s500.Asbankinggoes, March/April 2007 formance ofH price relative,whichcomparestheper- rally looksimpressive.However,the 20% inthelastfourmonthsand fund is still lagging the NASDAQ. the lagging still is fund tance and the exchange traded exchange the and tance b traded fund(E August toNovember.Theexchange January toJulyandthenralliedfrom one year).Thestockdeclinedfrom sharply over the last four months, four last the over sharply F rebounded HOLDRS Internet The by ArthurHill Resistance Reaches Internet HOLDRS RESISTANCELINE relative basis. advance isnotallthatimpressiveona to exceeditsSeptemberhighandthe ut the rally is running into resis- into running is rally the ut The B In additiontolessthanimpressive Tradable: Tradable: is thebiggestsectorinStan- part ofthefinancesector,which he BankingIndex($B H igure 1showstheInternet ber 2005tothepresent(about KX OLDRS

gapped upandbrokeresis- HH $BKX HHH TF (H

to theN ) gainedmorethan HH ) fromNovem- ASDAQ KX , failed ) is around 120in earlyFebruary. the upperchanneltrendlineextends to neling higherthelast12months and reasonable. Theindexhasbeen chan- overshoots andkeepthetrendline slope July. Ielectedtodrawthrough these were overshootsinMay,June,and the reactionhighsandlows.There (Figure 2).Itriedtofitthechannel parallel upperandlowertrendlines (magenta trendlines)andthendrew target, Ifirstdrewalinearregression around 120earlynextyear.Tofindthis at 113.6holds,theupsidetargetisto bullish signal. would callforareassessmentofthis ing supporthere.Abreakbelow113.6 113.6 onDecember8andIammark- test forthebulls.Therewasadipto turns intosupportandthisisthefirst sion, brokenresistancearound114.5 (green arrows,Figure1).Byexten- were twosuccessfultestsinNovember and thislevelturnedintosupport.There broke resistanceat112inSeptember port andthiswasthefirsttest.B advance. SeeFigure1. nals acontinuationoftheSeptember channel andthebreakoutat114.5sig- aryÐJuly decline.Ouch. and callforacontinuationoftheJanu- would reversethefour-monthuptrend this pullbackextend.Abreakbelow50 ever, 50isaboutasfarIwouldlet tile andentitledtoapullback.How- port around50Ð51.H the earlyAugusttrendlinemarkssup- key tothecurrentuptrend.Inaddition, tance turnsintosupportandthislevelis this isthecurrentsignal.Brokenresis- The stockbrokeresistanceat50and relative strength,theH H daily chartisstillup.Figure2shows formance, thefour-monthtrendon 55 inlateNovember. the stockwasonceagainturnedbackat remembered thisresistanceleveland and thestockwasturnedback.Prices broken supportturnedintoresistance was astrongbounceinlateMay,but broke thislevelinmid-May.There lished supportat55inMarchand JanuaryÐJuly decline.Thestockestab- support anda50%retracementofthe resistance zonestemsfrombroken into stiffresistancearound55Ð57.This HH As longasthebreakoutandsupport Broken resistanceturnedintosup- Despite resistanceandlaggingper- andtherallyfromearlyAugust. See www.Traders.comformore. This articlewasfirstpublishedon12/7/2006. HH HH

■ is quitevola-

is running ■ KX trend isstillup. FIGURE 2:HHH,DAILY. then ralliedfromAugusttoNovember. FIGURE 1:HHH,MONTHLY. target istoaround120early next year. FIGURE 2:BANKINGINDEX. FIGURE 1:BANKINGINDEX. Despite resistanceandlaggingperformance,thefour-month The InternetHOLDRSdeclinedfromJanuarytoJulyand BKX gappedupandbrokeresistanceinDecember. As longasthebreakoutand supportholds,theupside See www.Traders.com formore. This articlewasfirstpublished on12/15/2006. Traders .com • page37

METASTOCK METASTOCK

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. age (D the DowJonesTransportationAver- also be on guard for a double top. double a for guard on be also REVERSAL divergence means traders should traders means divergence ahead. the moving average convergence/ average moving the b prices lower suggest consolidation that hasbeenestablishedsuggests breaking thetrendline,newlow the intermediate-termadvanceafter more ofanefforttosetanewhighfor been clearerhadthetransportsmade trendline break.Whileitwouldhave closing belowthelowcreatedby their movementlower,onlyrecently break bounce,thetransportsresumed November. Afteraveryshort,post- mediate-term trendlineneartheendof 1, brokedownbelowtheirmain,inter- trading inthelow40s.) 2006 inthelow20sandiscurrently likely beContinental,whichbegan “highest-flying airline”wouldmost group cantakeit.(Incidentally,that even thehighest-flyingairlinein has arguablysetthebarhigherthan transports setinJune2006,theindex But withanewall-timehighinthe levels “forgood”almostoneyearlater. late 2004andbreakingoutabovethose reaching newall-timehighsbackin ready donetheirpartforposterity, weeks. adventuresome inrecentdaysand Index is challenging its prior high, prior its challenging is Index a from breakdown a and gences The North American Telecom American North The by ArthurHill T A Double Top In DOUBLETOPS W diver- histogram MACD Negative by DavidPenn A Hike T page 38 ut a big negative divergence in divergence negative big a ut ransports Takeransports elecom? The transports,asshowninFigure To besure,thetransportshaveal- Tradable: Tradable: JTA

• Traders ) hasbeendecidedlyless trial Average(D into all-timehighterritory, hile theDowJonesIndus- $XTC $TRAN .com JIA ) wades from being“overbought.”Itisonly trendline and(2)thetransportsslip pen: (1)pricebreaksdownbelowthe November 28whentwothingshap- are formed.However,itisn’tuntil when thelowerhighsinindicators gence isclearasofNovember20, (X The NorthAmericanTelecomIndex pattern andprojectfurtherweakness. the intermittentlowtoconfirm low inbetween.Ittakesamovebelow T Money.com (“B approach IwroteaboutinWorking- of thethingsIlikeaboutB equivocal sellsignal(Figure2).One divergence thatappearsisanun- wary ofbelievingthateverynegative tantalizing, andtradersneedtobe gram. Negativedivergencescanbe age convergence/divergencehisto- the stochasticandmovingaver- form ofnegativedivergencesinboth weakness. Thesesignscameinthe begun showingsignsofpotential break, however,thetransportshad would comeafewtradingdayslater. anticipated thelikelybreakdownthat the anemicbounceinearlyDecember be toaround855 (935-895=40, point andthedownsidetarget would would besubtractedfromthe breakout confirmation, thelengthof pattern this leveltoconfirmadouble top.After 895 anditwouldtakeaclose below highs, X lenging thishigh.Inbetweenthetwo 935 inlateOctoberandisagainchal- M high inboththestochasticand sents ahigherhighinprice,butlower peak inNovember,thethatrepre- tation ofthedivergencetrader. trying tobeearly—theeternaltemp- time, thereisnoreasontoworryabout is arecipeforfinancialruin. bounce istherebeforeitreally But actingasifthatcorrectionor almost alwaysfollowsadivergence. A correctionorbounceofsomesort thing similaristrueaboutdivergences. and traderscanremainsolvent.Some- tional forlongerthanmostinvestors saying goes,marketscanremainirra- diverged fromtheindicator.As chasing topsjustbecausepricehas lesson ishelpfulinkeepingmefrom against anoverboughtstock.Thislittle 2005) isthatitteachesmenevertobet ACD Several daysbeforethetrendline In thisinstance,notethesecond In otherwords,aslongyouareon TC ) formedareactionhigharound

histogram. Thenegativediver- equal topsandanintermittent sal patternwithtworoughly he doubletopisabearishrever- TC

forged areactionlowaround OSO ,” October5, OSO the lastfewmonths.TheM large negativedivergenceworkingover the transportswouldlikelyleadtoacorrectionofsomesignificance. the stochasticandMACDhistogramsuggestedthatmid-Novemberpeakin FIGURE 2:DOWJONESTRANSPORTATIONAVERAGE,DAILY. moving average(E that, asfarthe50-dayexponential betting againstanadvancingmarket basis —thatIwouldfeelcomfortable vember 28low—ideallyonaclosing after themarkettradesunderNo- in lateNovember, andtheDecember indicator thendeclinedtothe zeroline tained strength.Thiskeymomentum the endofOctober.Thisshows sus- traded atarelativelyhighlevel until from lateMaytoearlyAugust andthen vergence/divergence (M top becausethemovingaveragecon- 855. SeeFigure1. support somewherebetween835and at 837.Takentogether,Iwouldexpect there issupportfrombrokenresistance average iscurrentlyaround845and - 40=855).The200-daymoving is stilladvancing. I amentertainingthoughtsofadouble Such awagerwouldhavefound MA ) isconcerned, ACD ACD ) hasa

surged sal. First,M for twothingstoidentifyatrend rever- positive theentiretime.Iamlooking territory inearlyDecemberandstayed momentum bearish.Second, X negative territoryandthiswould turn trendline and its mid-Decemberlow should breaktheearlyDecember Penn, David[2005].“B S 2). TheM covers theDecemberadvance(Figure and usethe60-minutechart,which going tohomeinonshortertimeframe vance andtherallycouldfail. side momentumonthecurrentad- highs. Thelowerhighshowslessup- bounce remainswellbelowtheprior December 12. trader shorttransportationstockson take thetransportstoaslow4,380. downside fromsuchapatternwould top sincelateOctober.Thepotential been tracingoutahead&shoulders 1. Thetransportsalsoappeartohave trendline breaklowfromDecember transports closebelowthepost- trend reversaltestseemslikelyasthe AVERAGE, DAILY.Afailureofthe1-2-3 FIGURE 1:DOWJONESTRANSPORTATION UGGESTED For earlysignsofweakness,Iam Traders.com Advantage,October5. See www.Traders.comformore. This articlewasfirstpublishedon12/21/2006. Negative divergencesinboth ACD ACD ■

moved intopositive

READING

should moveinto March/April 2007 OSO TC ,”

PROPHET FINANCIAL

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. the exchangetradedfund(E This isthedefinitionofanuptrend,and higher loweroverthelastfewmonths. mains withaseriesofhigherhighsand dium-term trendchange.SeeFigure1. would markthebeginningsofame- would forgealowerlow,andthis move belowtheNovemberlow(64.62) tance tomarksupportaround65.A trendline convergeswithbrokenresis- to breaktheJulytrendline.This foreshadow atrendreversal.I ness overthelastfewweekscould w compares theperformance ofI relative weakness.Theprice relative formed alowerhighandthis shows early December,buttheprice relative candlestick reversal points to more to points reversal candlestick 500 this month, and a bearish a and month, this 500 been underperforming the S&P the underperforming been (small-caps) to theStandard&Poor’s T has iShares Small-Cap S&P The by ArthurHill W Show Relative Small Caps CANDLESTICKCHARTING term uptrendandcallforasupporttest (923.6). Thiswouldreversetheshort- again challengingthishigh. FIGURE 1:XTC,DAILY. March/April 2007 eakness. The E Tradable: eakness term uptrend,butrelativeweak- (I he S&PSmall-CapiShares TF JR

) remainsinamedium- formed ahigherhighin IJR XTC formedareactionhigharound935inlateOctoberandis TF ) hasyet JR

re- JR I midpoint ofthepriorcandlesticksbody. prior closeandtheisbelow occurs whentheopenisabove cember 14and15(Figure2).This pattern onThursdayandFriday,De- hold. TheE and Idonotthinksupportat65will sal patternpointstofurtherweakness, weakness, andthatisnotagoodsign. Small-caps arenowshowingrelative low itslateNovemberthisweek. high inDecemberandthenbrokebe- row). Thepricerelativeformedlower a periodofoutperformance(grayar- trendline resistanceinOctobertostart underperforms. Thepricerelativebroke I 500 (large-caps).Thelineriseswhen early Novemberlows. level ismarkedbythelateOctoberand support testaround63.This weakness aheadandIwouldexpecta candlestick reversalpointstofurther confirms thepattern.Aconfirmed black candlestickfollowedandthis weak andthisisareversalday.Along confirm thedoubletopandcallfora around 895.Abreakbelow895would JR JR A recentbearishcandlestickrever- candlesticks body. the midpointofprior and thecloseisbelow above thepriorclose occurs whentheopen is A darkcloudpattern

opened strongonFridaybutclosed outperforms andfallswhenI See www.Traders.comformore. This articlewasfirstpublishedon12/19/2006. TF

formed adarkcloud ■ JR

TC2000.COM; TELECHART 2007 a medium-termtrendchange. FIGURE 2:XTC,HOURLY. ahead. FIGURE 2:IJR,DAILY.Aconfirmedcandlestickreversal pointstofurtherweakness weakness couldforeshadowatrendreversal. FIGURE 1:IJR,DAILY. medium-term trendchange. This ETFremainsinamedium-termuptrend,butrelative A breakbelow895wouldconfirmthedoubletopandcallfor ■ See www.Traders.comformore. This articlewasfirstpublishedon12/19/2006. Traders .com • page39

TC2000.COM; TELECHART 2007

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TA06A1

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. change, obviously,youwouldnotea Should generalmarketconditions oversold conditions(-800--1000). conditions (+1000-+1200)thanfor higher valuesindicatedforoverbought a positivebias,soyouwilloftensee an uptrend,theindicatorhasdisplayed During thepastyearscharacterizedby cording totheirstudiesorexperience. Authors presentdifferentnumbersac- oversold oroverboughtconditions. say whichvaluesofreadingrepresent bought/oversold points—difficultto for high/lowreadingstoidentifyover- known astheArmsindex). erage stocks(T also fortheDowJonesIndustrialAv- You havethesametypeofindicator versus thestocksthatprintdownticks. Exchange (N strength of market moves. market of strength scalpers, as it can help assess the assess help can it as scalpers, popular among daytraders and daytraders among popular measuring market breadth. It is It breadth. market measuring time frame, as it is quite effective at effective quite is it as frame, time cially when utilized in a very short very a in utilized when cially advance-decline lineandtheT the tick,othersimilarindicatorsare stocks andtheirvolume.Inadditionto into accountadvancing/declining rived fromsomecalculationthattakes versus bears.Breadthistypicallyde- market reflectsthestrengthofbulls tures thedegreetowhichbroad short-term sentimentbecauseitcap- declining. Itisausefulmeasureofvery number ofstocksadvancingto ness, providingacomparisonofthe assessment ofmarketstrengthorweak- indicator thatprovidestraderswithan stocks (T T espe- tool, valuable a is tick The by PaoloPezzutti Overview Indicator A Tick March/April 2007 TECHNICAL INDICATORS Typically, tickcanbeusedtolook of stocksadvancingto stocksdeclining. weakness, providinga comparisonofthenumber traders withanassessment ofmarketstrengthor The tickisabreadthindicator thatprovides Tradable: listed ontheNewYorkStock difference betweenthestocks he tickindicatormeasuresthe IKQ ). Thetickisabreadth YSE $SPX IKI ) thatprintupticks ) andtheN RIN ASDAQ

(also points associatedtodivergences. when usedtospotshort-termturning play howeffectivetheindicatorcanbe In thefollowingexamples,Iwilldis- spot short-termmarketreversalpoints. candlestick patterns,respectively,to sold conditionstobearishorbullish it associatingitsoverboughtandover- of thetickindicator.Tradersoftenuse exit yourtrade. long tradeandapplyatrailingstopto by 100,thatisthetimetoenteryour the tickthenimproves by thetickindicator.If which isnotconfirmed at least90minuteslater, ond lowerorequallow then hastomakeasec- reading <350.TheS&P the morningwithatick the S&Pprintsalowin have abuysignalwhen tures. Inparticular,you on theS&PIndexfu- price andtheindicator divergences between tick indicatorexploiting interesting useofthe cator. Theyproposean as asmartmoneyindi- Street Smarts, Connors intheirbook Raschke andLaurence term trading. applications inshort- here findsseveralgood valid foranyindicator, confirmation, whichis concept ofnon- (or higherlow).The tick makesalowerhigh high (orlow)butthe when pricemakesanew A divergenceoccurs price andtheindicator. gences betweenthe the tickistospotdiver- ure 1. to reducenoise.SeeFig- with amovingaverage can alsobesmoothed negative bias.Thetick In Figure2,youcanseehowthetick There aremanyvariationsintheuse Linda Bradford Another waytouse INDI INDICATORS

refer toit FIGURE 2:SPX,TWO-MINUTE. positive territoriesduringthepastmonths. As anexample,youcanseethatthetick’s10-daymovingaveragehasalwaysremainedinto FIGURE 1:SPX,DAILY. CATORS tor. Alongdown candleisassociated negative divergenceofthetick indica- double topofpricesisassociated toa The sameoccursatpointD, whena negative divergenceofthe indicator. nal. AtpointCyoucansee another the tickindicatorprovidesabuysig- candle associatedtoanexpansionof tor doesnotconfirmpricelows.Anup prints adoublelowandthetickindica- sell signal. downside oftheindicatorprovidesa associated withanexpansiontothe with arelativehigh.Adowncandle a negativedivergenceincoincidence shows atwo-minutetimeframe. session oftheS&Pindex.Thechart efficiently, duringlastFriday’strading indicator displayedsomedivergences A fewbarslater,atpointBtheindex At pointA,thetickindicatorprints The tickindicatordisplaysapositivebiasduringthepastthreeyears’uptrend. The tickindicatorcanhelptradersspotveryshort-termreversalpoints. Raschke, LindaBradford, and S prices wouldcontinuelower. indicating thatintheveryshortterm, of thetickindicatortodownside, by alongdownbarandanexpansion The negativedivergenceisconfirmed loss andatpointGagoodsellsignal. sell signalthatlikelywouldendwitha signal. AtpointFyoucanseeanearly the tickindicatorprovidesanicebuy gence andabreakouttotheupsideof a doublelowofprice.Apositivediver- point Eyouhavealongupcandleafter to alongbarthedownsideoftick.At UGGESTED Group. Smarts, Laurence Connors[2004]. See www.Traders.com formore. This articlewasfirstpublished on11/6/2006.

M. GordonPublishing Traders

READING .com • page41 ■ Street

TRADESTATION

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. divergence (M increase. odds ofatrendreversalwouldgreatly the count(twooutofthree),and break. Thiswouldquicklychange forge ahigherhighandtrendline right now.Abreakabove18.2would cator isimportantbecausetheN be onguardforabreakout.Thisindi- is firmingonceagainandtradersshould February toMay2006.Theindicator and thisareamarkedsupportfrom trading backnearsupportaround15, trend change. trend resistance breakout to solidify a solidify to breakout resistance and traders should watch for a for watch should traders and has been slowly building a base, a building slowly been has VOLATILITY and higherlow.V uptrend: trendlinebreak,higherhigh, as longbothhold. prior highs.Anuptrendisimpossible remains belowtheJunetrendlineand break 18.2forareversal.Theindicator remains inadowntrendandneedsto moves up).SeeFigure1. usually movesupwhenV is negativelycorrelated(theN I Index Volatility 100 NASDAQ The by ArthurHill V Remember The relatively small.Currently,theV change fromJanuarytoDecemberwas Despite twobigmoves,theultimate positive. EventhoughtheN ing momentumandrecentlyturned down andmoveswhenV page 42 dollar back up a year later? year a up back dollar positive divergences bring the bring divergences positive dollar down in October. Will October. in down dollar Negative divergences took the took divergences Negative by DavidPenn Up AndDown Divergences: Dollar REVERSAL The movingaverageconvergence/ There arethreeingredientstoan On thedailychart(Figure2),V olatility Index? Tradable: n 2006theN of theyearandfellsecondhalf. Index ($V

• Traders VXN XN ACD ASDAQ ) surgedthefirsthalf XN .com ) showsimprov-

is zeroforthree

100 Volatility XN

ASDAQ ASDAQ ASDAQ moves XN XN XN

is wasn’t abad bet, atleastforalittle tinuous USdollarindexfutures). That support nearthe84level(basis con- lows, whichseemedtobea placeof time, Iwasfocusingonthespring 2006 Lows,” September8,2006). Atthe A The M tive territoryattheendofmonth. the indicatormovedbackintoposi- December crossoverwasbriefand ritory untilDecember8.Theearly August andremainedinnegativeter- moved intonegativeterritoryinmid- momentum indicators.TheM it isapriceseriesandwecanapply 100 VolatilityIndexisanindicator, be negativetotheN The startofanuptrendinV the startofatrendreversalforV first timeinmonthsandthiscouldbe Tradable: for areversal. FIGURE 2:NASDAQ100VOLATILITYINDEX,DAILY. ACD ing alow(“TheGreenback that theUSdollarwasnear- few monthsagoIsuggested See www.Traders.comformore. This articlewasfirstpublishedon1/3/2007.

turned positiveforthe DX ASDAQ XN . ■

would ACD XN . falling” because, amongotherthings, that “thedollarwouldprobably keep eral ReserveBoardchiefannounced Greenspan inwhichtheformer Fed- minating witharecentspeech byAlan 81. Dollarpanicsoared,perhaps cul- take outtheOctober2005lowsnear out supportat84andthreateningto greenback brokedownagain,taking from earlyMaytolateNovember. consolidate between84andabout87 while, asthegreenbackmanagedto and fellthesecond. FIGURE 1:NASDAQ100VOLATILITYINDEX,WEEKLY. However, inlateNovember,the VXN remainsinadowntrendthedailychartandneedstobreak18.2 casting mistakes.” Thus,I’lladmitthat “Greenspan hasatrackrecord offore- cago Sun-Times As columnistTerrySavageof the year notereboundedfromall-time lows. spring of2004,shortlyafter the10- adjustable-rate mortgageloansinthe couraged Americanstoloadupon Greenspan wasalsothemanwhoen- the UScurrency.” likely” toincreasetheir“allocations international fundmanagerswere“un- We shouldrememberthatAlan VXN surgedthefirsthalfofyear

noted atthetime, March/April 2007 Chi-

TC2000.COM; TELECHART 2007

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. nential movingaverage(E resistance testatthe200-periodexpo- draws nearintheformofanoverhead months. be sittingona30%gainoverfour this potentialturnaroundsignalwould bottom-picker whotookachanceon cant riseorfall.Inthiscase,theintrepid important turningpointsafterasignifi- 20-period E got in store now? store in got 20-period E successful supportofftheoften-telling Current actionseemstohintatthe here willlikelybeatradablemove. bottom for a nice gain, but what’s it what’s but gain, nice a for bottom would bebearish, possiblyleadingtoa the 200-periodE how thestockpriceiscaughtbetween F summer a off come has eBay by GaryGrosschadl Resistance Overhead eBay Tests RESISTANCELINE space limitations). gences areconfirmedbydivergencesinthestochastic(linesnotshownbecauseof in thesecondhalfof2005andpositivedivergence2006attest.Thesediver- charts areoftenbestspottedwiththeMACDhistogram,asnegativedivergences FIGURE 1:USDOLLARINDEX,CONTINUOUSFUTURES,WEEKLY. to closebelowthe20-period E nal thenextupleg. above the200-periodE page 44 Now anotherpotentialentrypoint On theotherhand,asuddenreversal Tradable: from lateJuly.Dojisoftenmark (E igure 1,aweeklychartofeBay

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MA could sig- ). Note MA period E previous highof$47.Butfirst,the200- resistance zoneof$40Ð42andthenthe ish upthrustareshownasaformer uptrend inplace. indicating thepresenceofastrong stochastic oscillatorcan“stickhigh,” turn.” Withenoughbullishness,the it willmanifestasa“highstochastic vergence (M the movingaverageconvergence/di- the bullishdojicandlestickcamewith to ashiftbullishpower. directional indicators(DIs).Thispoints ish crossofitspositiveandnegative with itsthreeparametersshowsabull- 1, thedirectionalmovementindicator ined atthispoint.AtthetopofFigure double bottomtest. support fromthe20-periodE from overboughtlevels.However,if chastic oscillatorshowingadownturn lagging theotherindicators. aforementioned DIcrossoverkicksin, index (R buy signalwastherelativestrength above the20-periodE area, whichcoincideswiththeclose The upsidetargetsforanotherbull- The earliestbuysignalconfirming Several indicatorsshouldbeexam- The cautionaryindicatoristhesto- traders’ indecision. reversal indicator,depicting are thesame.Itisasignificant when theopenandclose Doji (DJ): MA SI See www.Traders.comformore. This articlewasfirstpublishedon12/18/2006. ) movingabovethekey50 mustbebeaten. ACD Divergences onweekly ) crossover.Thenext

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PROPHET FINANCIAL approximately ayearlater. back wouldfinditselfbalancingon82 of 92inNovember2005,thegreen- indicated. Andfromaleveljustnorth other, thetopseemedparticularlywell- with bothindicatorsconfirmingeach vergences thanstochasticones,but more weighttoM With weeklycharts,Itendtogive chastic ontheweeklychart(Figure1). gence (M moving averageconvergence/diver- lished negativedivergencesinboththe topped outinNovember2005,itestab- bottomed inlate2004.Whenthedollar the majormovesofdollarsinceit done anexcellentjobinanticipating actly whatIfound.Divergenceshave chart ofthegreenback. ing forpositivedivergencesonthe bearishness onthedollar,Istartedlook- as soonIheardofGreenspan’s average lines.Watch foracomingresolution. FIGURE 1:EBAY,WEEKLY. And positivedivergenceswereex- ACD ) histogramandthesto- ACD

histogram di- This chartshowsthestockcaught betweentwomoving surprising strengthallthatlieahead. are behindit,withdaysofperhaps lihood thatthegreenback’sworstdays pattern holdsup,thereisastronglike- lower lowinthegreenback.Ifthat refused toconfirmthemostrecent M stand at81,wecanseethatboththe largely believedtobeafinalgoalline moves closerandtowhatis ing intoplayinlate2006.Asthedollar ACD Divergences againappeartobecom-

histogram andstochastichave See www.Traders.comformore. This articlewasfirstpublishedon12/12/2006. March/April 2007 ■

STOCKCHARTS.COM

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. TC2000.COM; TELECHART 2007 declines (grayverticallines). Aslongasthe relative risesandworstwhen thepricerelative It isclearthatGEperforms bestwhentheprice moving averagetotheprice relative( cessive relativeweakness. Iaddeda30-day moved belowitsJulylowandthisshowsex- the lastfewmonths.Infact,pricerelative in mid-Octoberandmovedtoanewlowover and thisisnegative.Thepricerelativepeaked relative weaknessoverthelasttwomonths, from JulytoearlyOctoberbuthasshown view abreakbelow35asbearish. ber. Thisestablishedsupportat35,andIwould end ofNovemberandthebeginningDecem- The stockconsolidatedaround35Ð35.5atthe below thelowertrendlinewouldbebearish. upper trendlinewouldbebullishandamove provide thenextsignal.Amoveabove dation andthedirectionofbreakoutwill December. Thistrianglerepresentsaconsoli- in mid-Novemberandahigherlowearly over thelastfewmonths.Thereisalowerhigh to earlyOctoberandthenformedatriangle which couldspelltrouble.GEsurgedfromJuly stock isstallingonthedailychart(Figure2), above thepriorhighs. the 2004advance.Thebreakouttargetsamove breakout inSeptembersignaledacontinuationof decline formedafallingwedgeandthe that extendeduntilJuly2005(18months).The ber 2004).GEthenembarkedonalongcorrection chances of a support break. support a of chances relative weakness increases the increases weakness relative 500 since mid-October, and mid-October, since 500 T S&P the underperformed has GE by ArthurHill GE Starts To Falter before embarkingonalongcorrectionthatextendeduntilJuly2005. FIGURE 1:GE,WEEKLY. March/April 2007 COMPARATIVE RELATIVESTRENGTH GE ledtheStandard&Poor’s500higher Even thoughthelong-termtrendisup, Tradable: and peakedattheendofyear(Decem- big trendisup.Thestocksurgedin2004 he weeklychart(Figure1)showsthatthe GE This stocksurgedin2004andpeakedattheendofthatyear red line ). stock. average breaktoconfirmatrianglebreakoutinthe for anupturninthepricerelativeandmoving increases theoddsofasupportbreakat35.Look average, GEremainsrelativelyweakandthis price relativeremainsbelowthe30-daymoving Day phone()______Email______Zip/Postal _____ City ______State Code______Country Address ______Name ______❒ ❒ Signature Acct No. ❒ ❒ ALL ORDERSMUSTBEPREPAID Show the world you’re one of its smartest traders! smartest its of one you’re world the Show

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. entries, and examining exit strategies. exit examining and entries, and crosses of the zero line, targeting specific targeting line, zero the of crosses and NASDAQ 100that beganthatspringwascoming toanend. from MaytoJulywasanexcellent signtothewatchfulthatbearmarketin FIGURE 1:NASDAQ100TRUSTSERIES. matter ofhabit),thefactremainsthatM gences asrevealedbythestochastic(mostlya To thisgroupwecanaddtheM D confirm them. markets makenewextremesandoscillatorsrefuseto divergences histogram trading at look a Here’s by DavidPenn (M and themovingaverageconvergence/divergence like thestochastic,relativestrengthindex(R rely ondivergencesbetweenmarketsandoscillators as introducedbytraderLarryConnor),mosttraders 2B method,alsoknownasthe“TurtleSoupsetup,” bottoms oftrends(forinstance,VictorSperandeo’s (M March/April 2007

THE OPTIMIZEDTRADER A IVERGENCES A ACD ACD H). AlthoughIrelymoreheavilyondiver- ) tocatchtheimbalancethatoccurswhen ods workwellforspottingtopsand divergences. Whilesomeothermeth- cherished spotinhisorherheartfor into amoveearlyprobablyhas ny traderwholikestheideaofgetting T

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histogram ACD Part II SI ), M capable ofreversingwoulddowelltoconsiderthe gences. Thoseeagertobuytrendsjustastheyappear powerfully realizedpositiveandnegativediver- histogram iscapableofrevealingclear-cut,often divergence. Inordertosetupthetriggersession,I gence orahigherlowinthecaseofpositive either alowerhighinthecaseofnegativediver- make afurtherextreme,whiletheindicatorregisters market makesahigh(orlow)andthengoesonto like onewithanyotherindicatororoscillator:the up thatcanoccurwiththestochasticorR the casewithhistograms)tendstoreducesizing- peaks andtroughsamongasetofverticalbars(asin that usesinglelinestoindicatevalues.Spotting easier tospotthaninthoseindicatorsandoscillators indicator. spot suchdivergencesbetweenthemarketand consult onaregularbasis.SeeFigure1. makes theindicatorthatmucheasierandquickerto different levels,theclarityofhistogrambars easier foratradertobedecisivewithregardthe While numericalindicatorvaluesdefinitelymakesit mine ifapeakinanindicatorwasactuallymade. well aseliminatethatannoyanceoftryingtodeter- ACD The divergencesusingthehistogramcanbeeven A divergenceintheM H alongwithwhateverothertooltheyuseto ACD ACD an excellentsignal fortraderstoclimbonboard therenewedtrend. positive asamarketismovingup fromapullbackinbullishadvance,itoftenprovides FIGURE 2:APPLECOMPUTERS.

histogram looksjust SI , as Not onlydoesthisgivemeaspecificpricetoenter, amount fromthelowoftriggerday(forshorts). high ofthetriggerday(forlongs)orsubtractthat signal isissued—andeitheraddthatamounttothe the dayorsessiononwhichbuysell/short to trader.Itakehalftherangeof“triggerday”— specific entrylevelorprice—willvaryfromtrader market. Someofthespecifics—likechoosinga Essentially, theseareallwaysofgettingintothe T particular zerolinemethodoperates. that ismovingfrompositivetonegativethis moving fromnegativetopositiveorsellahistogram area thattraderslookingtobuyahistogramis correction —becomesnecessary.Anditisinthis oversold thatachangeintrend—oratleast crossed andamarketbecomessooverboughtor plenty ofroombetweenthetimezerolineis likely tobeoversold(andthusbought),thereis thus sold)andthoseunderthezerolinearemore the zerolinearemorelikelytobeoverbought(and powerful signalsfortraders.Whilehistogramsabove positive tonegativeorviceversa)canalsoprovide zero line(thatis,whenthehistogramswitchesfrom frequency, histogramcrossesaboveandbelowthe sion withthesecond“m”—belowwhichtogoshort. resembling “m-M-m”wouldproduceatriggerses- negative divergencefollowinganuptrend,apattern session abovewhichtogolong.Withregarda peak, withthesecond“P”representingtrigger slope wouldresemble“P-p-P”onthesecond,shorter downtrend, thepatternrepresentingchangein trough inthehistogram. rely onachangeinslopethesecondpeakor When theMACDhistogramcrosses fromnegativeto HE Although itwasnotsomethingItradedwithmuch In thecaseofapositivedivergencefollowing

HAPPY

HISTOGRAM Traders .com • page47

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. page 48 4757 California Ave. SW, Seattle, WA 98116•206938-0570 covered inthisbookinclude: put themethodtouse.Detailsof Wyckoff method applied tothebondmarket;third,anoutlineofsteps first, thebasicprinciples;second,examplesofmethod takes thereaderstepbythrough Wyckoff method: the bestpioneeringtechnicalanalysismethods. This book Charting TheStockMarket Order toll-free: (800)832-4642 ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆

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TA05C8 Velez, Oliver[2000]. Kahn, Michael[2006]. Horner, Raghee[2005]. only validifitoccursabovethe50-dayE the sand.BythatImeanahistogrambuysignalis buying belowthe50-dayE gences which,almostbydefinition,willhavetraders exception tothisruleiswhendealingwithdiver- fortable usingthe50-dayE moving averagedurationandtype,Ifeelcom- 50-day E Although theM sort oftrading,particularlyintermsduration. E closing basis.Thesessioncanopenbelowthe50-day (A high orlow),multiplesoftheaveragetruerange amount (15centsaboveorbelowthetriggersession’s candlestick. Othersmaychoosetouseafixed-point than abuysignalonrelativelyshort-rangedbaror bar willforcemetoenterthemarketatahigherlevel kind oftriggerIget.Abuysignalonawide-ranging but italsoprovidesalittlewiggleroombasedonthe Murphy, JohnJ.1996]. Elder, Alexander[1993]. Achelis, StevenB.[1995]. S This articlewasoriginallypublishedon12/29/2006. Gifford, Elli[1995].TheInvestor’sGuideToTech- below the50-dayE time, Ionlyactonhistogramshortsignalsthatoccur Otherwise, thebuysignalisignored.Atsame the tradeshouldbeinitiated. (the highorthelow)oftriggersessionisviolated, rule,” whichstatesthatassoonthepriceextreme book ment approachthatI’vealsofoundhelpful.Inhis to gaintwopointsorlosenomorethanthree). up orthreedown”moneymanagement(thatis,look term exitstrategiesliketrailingstopsorspecific“two a swingtradingtool.Thismeantrelyingonshorter- entry signalcreator,Iinitiallylikedtheapproachas average (E trading methodisthe50-dayexponentialmoving with M may beagoodoption. a littlemoreleewayisgoodthing,chandelierstops trailing andtimestops.Fordivergencetradeswhere once thetradehasgained$1,andthenemploy Velez encouragestraderstomovestopsbreakeven MA UGGESTED Another smallfeaturethatIusewiththeM Oliver VelezofPristine.comhasatrademanage- One lastnote:Thesortofexitsmostappropriate TR mum Profit, Master DayTrader, Wiley &Sons. And Simple, ing. nical Analysis, A ToZ,IrwinProfessionalPublishing. John Wiley&Sons. , butbythecloseitmustbeabovethatlevel. ), orevenJ.WellesWilder’s“extremepoint Tools AndTacticsForTheMasterDayTrader ACD MA MA

histogram tradingdependmoreonthe . ). Everytraderhashisorherpreferred JohnWiley&Sons.

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. Divergence Diamonds (DIA) Cubes (QQQQ) Convergence —Whenfuturespricesandspot Commodity ChannelIndex— Bollinger Bands—DevelopedbyJohnBollinger. Average DirectionalMovementIndex(ADX)— ABC — Directional MovementIndex(DMI) Doji —Asessioninwhichtheopenandcloseare Elliott WaveTheory Bill, AGraphicEpic, newspapers from1988to1992.Thebook Times reached [email protected]. www.whatsonsale.ca/financial.html andhemaybe Peterborough, Ontario,Canada.Hiswebsiteis equities traderandtechnicalanalystbasedin Gary GrosschadlisanindependentCanadian cartoons. of two,Brownoftendepictshisownfamilyin in theTakoma political cartoon“CitizenBill,”whichispublished William L.Brown(coverart) page 50 they canbetradedanytimeduringthetradingday. mance oftheDJIAblue-chipstocks.Likestocks, are designedtocloselyapproximatetheperfor- posure). nonfinancial stocks(offersbroadtech-sectorex- made upofthe100largest,mostactiveNASDAQ are ETFsthattracktheNASDAQ100,whichis come togetheratthefuturesexpiration. sures theprice“excursions”frommean. Lambert, thispricemomentumindicatormea- and maycontinueinthatdirection. broken, areanindicationthatthetrendispowerful and contractindecreasedvolatility,when Bollinger Bandswidenduringincreasedvolatility market trendintensity. cator developedbyJ.WellesWildertomeasure Fibonacci series. waves forprice price move.ElliottwavefollowersstudyAandC final pricemovetocompletethecountertrend B isacorrectivewavetoWaveA.Cthe price waveagainstthetrendofmarket.Wave countertrend pricemovement.WaveAisthefirst patterns. and arealsocomponentsofimportantcandlestick the mostimportantindividualcandlesticklines, relation totheentirerange.Dojilinesareamong doji) dependonwheretheopeningandclosearein doji lines(suchasagravestoneorlong-legged same (oralmostthesame).Differentvarietiesof fail toshowconfirmingtrends. by J.WellesWilder,DMImeasuresmarkettrend. waves downarereferredtoas a“correction”ofthe to formacompletecycleofeight waves.Thethree or patternoffivewavesupand threewavesdown which holdsthatthestockmarket followsarhythm nique publishedbyRalphNelson Elliottin1939, . His“CitizenBill”appearedinseveral

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