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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. page 4 20 16 15 15 12 12 10 Traders.com inanyformwithout writtenpermissionfromthepublisher. Copyright ©2007 TechnicalAnalysis,Inc.Allrights reserved.Informationinthis publication mustnotbestoredor reproduced TABLE OFCONTENTS INDEXES chart presentsconflicting evidence. correction intheDowJones Industrial Average? A lookatthe Are theeventsofweek endedJuly27thestartofamajor by KoosvanderMerwe can expectaretracementofthisbigrally. support toreversea12-monthuptrend. At theveryleast,we high, theNikkeigappeddownandbroke After meetingstiff resistancefromitsMarch Hill by Arthur bounce asitbecomesoversoldandtradesatsupport. last twotothreeweeks,buttheindexcouldberipefora The Russell2000borethebruntofsellingpressureover Hill by Arthur Industrial Average sincethebigrunupstartedlatein2002. The Toronto StockExchangehasoutpacedtheDowJones by GaryGrosschadl $O by ChaitaliMohile or defygravityawhilelonger. suddenly correctatthefirstcandlestickwarning When astockorindexisoverextended,itcan by GaryGrosschadl indicator. There’s morethanonewaytotradethisclassicmomentum by DavidPenn resistance. wedge, andabiggerA the comingmonths. A Long-Term Analysis Of The DJIA A Breakdown In The Nikkei Russell 2000HitsSupport The TSX Composite’s Monthly View The S&P100Index BouncesBack Three Strikes For The NASDAQ? TRIX TwoWays, •Traders EX ™ ispublishedby Technical Analysis,Inc.,4757California Ave.S.W.,Seattle,WA98116-4499. 1206938-0570or 1800832-4642. PrintedintheU.S.A. hasturnedpositive,leavingbehindsomeofits .com C W Hill by Arthur 14 Traders RB ith asharpdeclineoverthelastthreeweeks, Indexbrokethelowertrendlineofarising The CRBIsBreakingDown THE MAGAZINE FORINSTITUTIONALANDPROFESSIONAL TRADERS Part I Part BC pattern pointstofurtherdownsidein 26 23 22 29 29 28 27 26 21 METALS ANDENERGY CHART PATTERNS The rallyintheN by DavidPenn We by KoosvanderMerwe a possibledouble-topformation. support fromits50-daymovingaverage. This coincideswith The DowJonesIndustrial Average iscurrentlytryingtofind by GaryGrosschadl market. Using therelativestrengthindextospotpotentialturnsin by DavidPenn The symmetricaltriangle onthe$X by ChaitaliMohile months. the lowendofatrendchannelthathascontained pricesfor As theadvanceinoilpricesstalls,servicestocks moveto by DavidPenn points fromits14,000high. What isthenextlikelymove? The DowJonesIndustrial Average has declinedsome800 by GaryGrosschadl transports. A failedbreakoutsetsupadiamondconsolidationintheDow by DavidPenn candlestick patterninPowerSharesQ The bullishrallyisblockedwithanadvanceblock by ChaitaliMohile head &shoulderspatternsignaledacorrection. contract theindexrange. Channel The QQQQ’s Intraday Head&Shoulders Top So What The DJIA’s Double Top Test Gold &Silver Index Move InNarrower Range Stocks Oil Service Test Of Support Trend The Dow JonesPitchfork View Cup With HandleBecomesDiamond Advance Block InQQQQ RSI: Platinum’s Failure Swing shouldsticktotherules. NOVEMBER/DECEMBER 2007•VOLUME5NUMBER6 Is The True Elliott Wave Count? ASDAQ .com 100lastedalmostamonthbefore AU QQ chartislikelyto TM November/December 2007 Trust.

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. SECTORS TABLE OFCONTENTS 37 36 35 33 32 31 31 page 6 failure tofollowthroughhelpedtraderstradethetopin A Look, Ma,noindicators!Howresistance,newhighs,anda by DavidPenn X by ChaitaliMohile The X by KoosvanderMerwe index isnowoversoldandatsupport. last week,buttradersshouldbeonguardforabounce asthe The DowJonesBasicMaterialsIndexledthemarket lower Hill by Arthur bottom inthefallingD Positive divergences inthesecondhalfofJuly helpedcreatea by DavidPenn play andalarge doubletoptakesshape. that maybeabouttochangeasmajorresistancecomesinto Long-term rateshavebeenrisingforfourandahalfyears,but Hill by Arthur Lower peaksintheM by DavidPenn a correctionduringtheuptrend. chart hasformedarisingwedge. The sectorislikelytowitness in theSeptember Treasury note. Some MoreCorrection Dow HitsSupport JonesBasicMaterials Divergences And The Dow JonesUtilitiesIndex Long-Term Rates RunIntoResistance Negative Divergences And The BondBounce Barrick Gold’s 2B Top Energy SelectSectorMay Undergo Is It Time To Nibble AtGold? •Traders LE hasmovedintotheoverboughtarea,anddailyprice AU i-Shareisclosetothinkingso. .com Traders THE MAGAZINE FORINSTITUTIONALANDPROFESSIONAL TRADERS is forming. days, anditlookslikeacontinuationpattern the Dowtransportsstalledoverlastseven After breakingsupportwiththesharpdecline, Hill by Arthur Break Support 35 ACD Tr JUA ansports StallNear ansports histogramaccompanytheadvance . BX . 39 38 37 46 45 41 40 40 46 CURRENCIES A Advertisers’ Index Glossary reversal patternshintatabottom. “I’mnotdeadyet!”criedthegreenback,asdivergences and by DavidPenn targeting itsoldhighs. The Computer Technology Indexsurged aboveresistance, by ChaitaliMohile contract highs. Negative divergences developasthe10-year Treasury nears by DavidPenn momentum indicator. Installment2oftwo. T by DavidPenn an endtotherallyinSeptembergreenback. A classicbearishreversalpatterninthesecondhalfofJuneput by DavidPenn near-term strength. A pairofbullishbeltholdpatternsinthegreenbacksuggest by DavidPenn Candlestick Lines USD/CHF: Positive Divergences AndHammer Breakout InComputer Technology Index December BondsDrive IntoResistance TRIX TwoWays, CloudCoverDollar Dark Belt HoldsBolster The Dollar rading divergences, golden crosses, andfallswiththeclassic uthors AndArtist

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help computation ofT ages, bothstandaloneandweb-based.Evenso,the market whentheT T T technical analystshavemodifiedandtweakedthe zine. Whiletherehavebeenanumberofwaysthat using theT zero line,oneofthemostcommonwaystrading cal Analysisof momentum indicator. momentum stochastic. Essentially,T a numberofothermomentumindicatorssuchasthe remain validandvaluablemethodsfortraders. T classic this trade to way one than more There’s by DavidPenn OPTIMIZEDTRADER signals. in thecaseofsellsignals)based onthoseTRIXtrading (higher closesinthecaseofbuy signals;lowercloses upper panel,theovalsrepresent theconfirmingcloses sent TRIXbuyandsellsignals inthelowerpanel.In FIGURE 1:RUSSELL2000INDEX, DAILY. ing sessionrateofchangetogettheT moving averageandcalculateaone-day/oneÐtrad- ing average.Finally,takethisthirdexponential tial movingaverageofthesecondexponentialmov- nential movingaverage,andthentakinganexponen- of S the originalwaysthatJackHutson,publisher exponential movingaverage(E initial exponentialmovingaverage,thentakingan It’s It’s RIX RIX RIX T Because theT RIX TOCKS

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. to thepricechartinFigure2.T T again thechartofRussell2000inFigure1.The enduring trendstotheupsideordownside.Consider 5, 2005),crossovertothezerolinecananticipate potential topsandbottomsintheT which areanexcellentstrategyforanalyzing leaving asidefornowtheissueofdivergences— to, ataminimum,thethreatofcorrection.But above the50-dayE only betakeniftheyoccurinsessionsclosing the samewaythathookdoesinT “warning.” Thehingeappearedinthestochastic there weretwotypesofhook:the“hinge”and oscillator asatradingsignalinandofitself.ForLane, tion inthevelocityofmovement”amomentum November/December 2007 momentum often runsoutquicklyaftera hook buy signal fromthehook,you’ll seethatwhilethe entry signalfromthezero-line crossovertotheentry momentum intheoscillator. Ifyoucomparethe soon asthereistheslightest wiggleofwaning geared towardhighlightingtrading opportunitiesas and backtobelow800. Russell 2000ralliedfromnear800toashigh830 negative territoryuntillateFebruary.Inthattime,the of January,anddidnotfallmeaningfullybackinto case withthestochasticinB short-term, momentum-orientedtrader.Aswasthe strengths, thehooksapproachhasmuchtooffer TIES term opportunities. May aswellinmid-Junewereexcellentshort- failed tomakemoney.Bullhooksinmid-andlate added a50-dayexponentialmovingaverage(E tine totimeyourentryinatrendingmarket,”Ihave Working-Money.com article“B the stochasticinanarticleforS the stochasticaswell.GeorgeLane,writingabout can befoundinothermomentumoscillatorssuchas T 50-day E be takeniftheyoccurinsessionsclosingbelowthe downward T signals arederivedfromeitherahinge/hookupin tion theoscillatorismoving.Inotherwords,trading bending orcurvinganglingawayfromthedirec- divergence intheT collapse inlateFebruary.Arguably,thenegative provided anyshortentryduringtheRussell2000’s rally thatbeganinFebruary. both ofwhichwouldhavebeensolidentriesforthe level. ApairofbullhooksdevelopedinlateJanuary, ride higherbeforepullingbacktothebreakeven in earlyJanuaryandwasgoodforaquickthree-day hook comesaccompaniedbyahammercandlestick entries comparedtothezerocrossover.Thefirstbull 2007 andseewhatthehookprovidesbywayof countertrend signals. trend contextand,hopefully,weedoutineffective when thezerocrossovermethodofusingT number ofprofitabletradesduringMayandJune, cant andsharpdeclineinthemarket. method providednoshortsignalduringasignifi- discussed ingreaterdetailpart2—thehooks RIX RIX The hookmethod,ontheotherhand,isespecially The hookmethodisonelimitednottoT Interestingly, thehookmethodwouldhavenot Let’s lookatthesamefirstfour-oddmonthsof At thesametime,hookmethoddidprovidea , wroteabouthowtraderscouldusethe“reduc- . Whilethezero-linecrossoverapproachhasits crossed intopositiveterritoryinthesecondhalf MA RIX . Thiswillhelpgivethesignalssome

or ahinge/hookdowninanupward RIX MA . T

would havealertedtraders RIX

sell signalswillonly TOCKS OSO RIX OSO

buy signalswill method (seemy RIX ” fromOctober

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and willbe OMMODI RIX RIX : asa , but MA RIX ) - _____ [2005].“B able tradingpatterns. dead crosses,andotherprofit- line torevealgoldencrosses, divergences andwithasignal Hutson, Jack[1983].“Good S 8/2/2007. This articlewasoriginallypublishedon other waysofusingtheT of thisarticle,Iwilllookattwo the marketsprovide. cipline totakewhateverprofits momentum traderswiththedis- pecially helpfulforshort-term, fective, thehookapproachises- While bothtechniquescanbeef- zero-line crossoversignalsarrive. tend tocomesessionsbeforethe or sellsignal,thehooksignals Penn, David[2002].“T Lane, George[1984].“Lane’s UGGESTED Next time,inthesecondpart C S TIES Stochastics,” T Volume 1:5. tober 5. Technical Analysisof TOCKS RIX OMMODITIES , Volume20:March. ,” Technical Analysisof

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Technical Analysisof READING OSO OMMODITIES , Volume2:3. ,” Working-Money.com,Oc- ■ For moreinformation, visittheS&Cadindexat S RIX RIX TOCKS

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became choppyinMayandJune. better, catchingswingopportunitiesasthepriceactioninRussell2000 method failedtheRussell2000,hookapproachperformedmuch FIGURE 2:RUSSELL2000INDEX,DAILY. & C S OMMODI TOCKS & - Traders.com/reader/ momentum-oriented trader. much tooffertheshort-term, The hooksapproachhas found onlineatwww.working-money.com. This article — and articles like it—canbe —andarticles This article Where thezero-linecrossover Traders .com ¥ page11

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. almost $35to traders.Thereafter, news. Theentireadvancerally gave as theentiremarketsurged withthe count cutnews.Therallystrengthened the FederalReservecamein withdis- by astrongopeningonAugust 17as crows, andsoon. ders, threewhitesoldiers,black triple tops&bottoms,headshoul- rife withpatternsinvolvingthrees— superstitious, buttechnicalanalysisis ings willnotgounnoticed;callme warning couldbestrike3.Threewarn- uglier thanthefirstone.Thisthird candlestick hasappeared,biggerand down days. sal. Thisoneonlyprecipitatedthree rise, dojisoftenmarkapendingrever- a dojicandlestick;afteranextended The secondwarning(strike2)cameas was quicklyforgiven—callitstrike1. 1). Thefirstbearishengulfingpattern defy gravity a while longer. while a gravity defy the first candlestick warning or warning candlestick first the behind some of its resistance. its of some behind at correct suddenly can it tended, page 12 T leaving positive, turned has $OEX by ChaitaliMohile Back Index Bounces The S&P100 FLAGSANDPENNANTS T overex- is index or stock a When by GaryGrosschadl The NASDAQ? Three StrikesFor CANDLESTICKCHARTING Now anotherbearishengulfing Tradable: Tradable: closing onAugust16,followed & Poor’s100indexbeganat he bullishrallyontheStandard candlestick formations(Figure index showsthreebearish his dailychartofthehigh-tech ¥Traders I NDEXS I NDEXS I NDEXS $OEX $COMPQ .com level. ThesmallestnoteIwouldlike MA, withthehighmadeat$676 ish candleclosedabovethe200-day ish weekendclosing.Thelongbull- tance turnedintosupportbythebull- cial markets. with theupwardswingofUSfinan- hurdle ofthe50-dayMAwastakenoff (MA). Thefirstandclosestintraday port ofthe50-daymovingaverage the chart,indexclosedatsup- intraday chart(Figure1).Accordingto formed aflag&pennantpatternonthe range. Thisday-and-a-halfmove index turnedsidewaysina10-point throughout theintradaysession, vergence (M The movingaverageconvergence/di- overextended anddueforacorrection. of them)oftenpointatarunbeing will tellsoonenough.■ run southtostrongersupport.Time drawn wouldcloselymatchthisE natural trendlines.Asupporttrendline Moving averagesoftenarelikenedto could bethefinalnailinthiscoffin. age (E the 50-dayexponentialmovingaver- will be:Whenandhowmuch? bearish indication,butthequestion bullish priceaction.Thisiscertainlya these indicatorsfailtoconfirmthe tion. Astheindexmakesnewhighs, indicator (MF)allshowdivergingac- index (),andtheChaikinmoneyflow day E the previoussuccessfultestof200- as alikelydownsidetargetortest;note day E tors. Theumpireiswatchingthe50- are startingtowaiver,saytheindica- three timesofapossibletop.Thebulls to thealwaysimportant200-dayE Should asizablecorrectionoccur,look In Figure2,the200-dayMAresis- Multiple negativedivergences(three Note thepreviousgoodsupportfrom In summary,thisindexhaswarned MA MA MA — maygetviolated. previous intradayhighat$700 200-day movingaverageandthe tween, theresistance—likely at minimum levelof$710.Inbe- & pennantbreakoutwillseethe FIGURE 1:$OEX,HOURLY.Theflag , andfailuretherecouldbea lastMay. See www.Traders.comformore. This articlewasfirstpublishedon6/27/2007. ). Acloseunderthislevel ACD ), therelativestrength MA MA . formations. FIGURE 1:NASDAQ,DAILY. The charthintsatthreestrikesviabearishcandlestick November/December 2007

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. M 26, 9)isstillnotinfavorofbulls.The coming months. coming definitely bebought.TheM ney fromoversoldlevels(20)can moving abovethe20level.Thejour- open newtradingopportunitiesby sibility cannotbeignored. haps inpastweeks,thesmallestpos- on positiveground.Withallthemis- possibility ofaminorsidewaysmove resistance levels,sotherearisesa trading sessionclosedunderthesame marked circle).Andtheprevious halt intherangeof$675-$680(the points to further downside in the in downside further to points w the lower trendline of a rising a of trendline lower the rally. Thisoppositesignagaindi- bullish crossovertostrengthenthe three weeks, the CRB Index broke Index CRB the weeks, three page 14 O last the over decline sharp a With by ArthurHill Breaking Down The CRBIs downfall, the$O to highlighthereisthatduringthe target. First,youcanseethat theindex 2), wecangetanideafora downside trend reversal. lows wouldcompletethe bearish further weaknessbelowtheMay-June cline overthelastthreeweeks,and the lowertrendlinewithasharpde- mal forsuchrallies.Theindexbroke rallies, anda50%retracementisnor- rising wedgeistypicalforcountertrend support. Thisisaclassicsetup.The decline andmetresistancenearbroken wedge retraced50%oftheprevious back witharisingwedgethisyear.The to January2007andthenbounced WEDGEFORMATIONS edge, and a bigger ABC pattern ABC bigger a and edge, ACD The stochastic(14,3,3)islikelyto Turning toalong-termchart (Figure Tradable: strengthen therally. bullish crossoverto needs toconfirma favor ofbulls.TheM The M

(12, 26,9)needstoconfirma ¥Traders (Figure 1),theC n theweeklycandlestickchart clined sharplyfromMay2006 ACD $CRB isstillnotin .com EX

had amoderate RB

Index de- ACD ACD

(12, the M minor consolidationmayalsohelp ways moveatthe$676level.This verts themindfromminorside- get zonearound250-260. would markmydownsidetar- low ofwaveA.Therefore,I 275 andthisistooclosetothe retracement markisaround retracement marks.The50% between the50%and62% to around260.Thislevelis wave Chighwouldcarrydown and a21%declinefromthe get. WaveAdeclined21% A tocalculateadownsidetar- wave Aandwecanuse tion, waveCisoftenequalto tinuation ofwaveA.Inaddi- decline, andwaveCisacon- represents abounceafterthis is theinitialdecline,waveB form asA theory, correctionsoftentake weakness. the firstsignificantsignof way andthecurrentdeclineis small correctionsalongthe vance occurredwithrelatively 2001 toMay2006).Thisad- run from183to265(October pretty muchdoubledwiththe least acorrection.Theindex 2006 andisinthemidstofat broke along-termtrendlinein to achieveontherally. look toward$720asthehighestlevel first asperourcalculationandthen can beboughtwiththetargetof$710 level, arallymaybegin. final targetforthismove.Above vious highof$720wouldactasthe tance ofthepullbackrally.Thepre- The 50-dayMAisthenextresis- jump overthehurdlesontheirway. bulls arebackinformandreadyto tive, buttheentirepictureshowsthat According toElliottwave Thus, theflag&pennantbreakout See www.Traders.comformore. This articlewasfirstpublishedon8/23/2007. ACD See www.Traders.comformore. This articlewasfirstpublishedon8/24/2007. BC (12,26,9)turnfullyposi-

declines. WaveA ■ ■ downside target. FIGURE 2:CRBINDEX,LONG-TERM. FIGURE 1:CRBINDEX,WEEKLY. then bouncedbackwitharisingwedge. bullish rally.Abovethishurdle,$720remainsthefinaltargetinupsidemove. FIGURE 2:$OEX,DAILY. often takeformasABC declines. According toElliottwave theory, corrections The CRBindexdroppedfromMay2006toJanuary2007and The resistanceofthe50-daymovingaverageiscrucialfor Looking longterm,wecangetatleastanideafora November/December 2007

METASTOCK Copyrights 2007 © Technical Analysis, Inc. All rights reserved. since July2002. Thedeclinecarried days andthisisthesharpest decline 20-day E vors. Theindexfinallybeatoverhead tion ofaturnaroundcameintwofla- important turningpoints.Confirma- tom onthischart.Dojisoftenmark the dojicandlestickmarkingbot- was aptlyillustrated(Figure1).Note tial movingaverage(E will stayaboveits20-periodexponen- plunge. and-neck forawhileunlessoilprices These indexeswillprobablystayneck- from theheavieroilandgasweighting. the D recently hitapeakjustover14,600vs ov shooting starcandlestick,thetopwarn- Whether youcallthisaneardojior stick withalonguppershadow. this chartviaasmall-bodiedcandle- topping formationhasappearedon tional indicatorscrossedover).Nowa the chartflashedabuysignal(directional movementindicatoratthetopof be ripe for a bounce as it becomes it as bounce a for ripe be to three weeks, but the index could index the but weeks, three to Av selling pressure over the last two last the over pressure selling Industrial Jones Dow the outpaced CHARTANALYSIS November/December 2007 O of brunt the bore 2000 Russell The by ArthurHill Hits Support Russell 2000 OVERBOUGHTOVERSOLD F has Exchange Stock Toronto The by GaryGrosschadl Monthly View Composite’s The TSX started late in 2002. in late started A stockoranindexonastrongrun ersold and trades at support. at trades and ersold Tradable: Tradable: erage since the big runup big the since erage JIA Industrial Average(D index surpassedtheDowJones or thefirsttime,thisCanadian

14,000. Theextrajuicecame clined over10%inthelast11 the Russell2000($R n thedailychart(Figure1), MA

resistance andthedirec- $TSX $ RUT MA ), andthis JIA UT ) asit ) de- perfect stormarise. some ofusofftherocks,shoulda navigate thewatersandhopefullykeep market knowsforsure,butchartshelp down orabiggercorrection?Onlythe does shego?Willthisbeamodestdip mind: Whatgoesupmustcomedown. nontrending indicator. will stickhigh,asit’sconsidereda ket isinastronguptrend,thisoscillator overbought condition.Whenthemar- stochastic oscillatoralsoreflectsthis likely tocontinuemuchlonger.The shows anoverboughtconditionnot E intact. Ifthatsupportfails,the50-day convergence/divergence (M mixed sentiment.Themovingaverage 10,000 level. decline islikelyunderwaythe 11,000. Shouldthatalsofail,amajor Note howthe20-dayE ered onthismonthlychart(Figure1). mark. ity tobeattheprevioushigh-water gust candlestickandsubsequentabil- comes withthecompletionofAu- ing remainsthesame.Confirmation day E Second, therelative strengthindex(R shows thatthisdeclineisoverdone. and asimplevisualchartinspection a 10%declinein11daysis extreme measures andripeforabounce. First, 760, theindexisoversold bymost within 5pointsofthiszone. zone around760andtheindexisstill resistance zones.Iamsettingasupport and Ifinditbesttousesupportor such, wecanexpectsomeovershoots are morevolatilethanlarge-caps.As high-beta small-capstocksandthese shoot. TheRussell2000ismadeupof day oldanditcouldstillbeanover- bearish. However,thebreakisjustone March lows,andthissupportbreakis Technically, R and pastitsMarchlowsonFriday. the indexpastitsJunelowslastmonth change orreversalahead. This sometimesrevealsacoming gram doesshownegativedivergence. shows astronguptrend,butitshisto- the 20-dayE by horizontallines.Ifsupportholdsat support andresistancelevelsmarked MA It’s beenagrandrun.Howfardown In summary,anadagecomesto The indicatorsunderthechartshow Two downsidetargetsareconsid- In additiontoasupportzonearound The relativestrengthindex(R

See www.Traders.comformore. This articlewasfirstpublishedon8/9/2007. may comeintoplay,currently MA

currently relatetoprevious MA UT , thestronguptrendis

closed belowthe ■ MA

and the50- ACD ) still SI SI ) ) this isthesharpest declinesinceJuly2002. FIGURE 1:$RUT,DAILY. go? Willthisbeamodestdiporbiggercorrection? FIGURE 1:TORONTOSTOCKEXCHANGE(S&P/TSXCOMPOSITE),MONTHLY. The Russell2000declinedover 10%inthelast11daysand Traders .com How farwillshe ¥ page15

TC2000.COM; TELECHART 2007 STOCKCHARTS.COM Copyrights 2007 © Technical Analysis, Inc. All rights reserved. retracement of this big rally. big this of retracement support levelsturnintoresistance.$R measure upsidetargets.First,broken extend? Therearetwomethodsto mentum. week’s hightostartabounceinmo- the very least, we can expect a expect can we least, very the to reverse a 12-month uptrend. At uptrend. 12-month a reverse to gapped down and broke support broke and down gapped from its March high, the Nikkei the high, March its from page 16 showed indecision,andtheindexindi- sticks. Thesefivesmallcandlesticks and thenstalledwithfivesmallcandle- first closedabove18000inmid-June and gappeddownlastweek.Theindex O resistance stiff meeting After by ArthurHill The Nikkei A Breakdown In OSCILLATOR RELATIVESTRENGTH break turnsintoresistance.Inaddition, broke theJunelowsat820andthis Look fortheR be onguardforanoversoldbounce. sider shortpositionsandtradersshould the RSIoversold,itistoolatetocon- moved backbelow30onFriday.With bounce lastweekbutfailedandtheR the secondinJuly.Theindextriedto year. ThefirsttimewasinMarchand dipped below30forthethirdtimethis How farmightanoversoldbounce Tradable: ¥Traders resistance fromitsMarchhigh the Nikkei225($N225)met n theweeklychart(Figure1), For moreinformation, visittheS&Cadindexat $N225 SI

.com to breakabovelast UT SI 18000, theR spite afive-monthadvancebackabove and formedalowerhighinJuly.De- indicator movedabove70inMarch (R tured bytherelativestrengthindex the Julyhighstoreversethissignal. momentum. Lookforamoveabove trendline breaksignalsareversalin as longitremainsunfilledandthe This gapshouldbeconsideredbearish trendline extendingupfromJune2006. decline featuredagapandbrokethe with alongblackcandlestick.The cated itsmindwasmadeup,comingup (Figure 2). sold bouncetothe805-820region Taken together,Iwouldtargetanover- marks resistancearound807-820. pect a50-62%retracementandthis extends from795to820.Iwouldex- is basedonDowtheory.Thisrange based onFibonaccinumbersand50% (~860 to~755);38%and62%are retrace 38-62%ofthepriordecline Second, countertrendralliesusually broken supportzonefrom810to820. broken supportat810andthereisa the Maylowscanbeincorporatedas as well.Moreimportant,theR tor wentontobreaktheJunetrendline tive divergenceformedandtheindica- Based onweeklyclosingprices,anega- high andmomentumwasnotasstrong. and lowerpricesareexpected. 100). Momentumnowfavorsthebears the bottomhalfofitsrange(zeroto below 50,andthisputstheindicatorin The momentumreversalisalsocap- SI ) withitsbreakbelow50.The Traders.com/reader/ See www.Traders.comformore. This articlewasfirstpublishedon8/6/2007.

■ SI

did notreachitsprior SI

moved at downsidetargets. FIGURE 2:NIKKEI225,WEEKLY. gapped downrecently. FIGURE 1:NIKKEI225,WEEKLY.TheNikkeimetresistancefromitsMarchhighand retracement of theentireadvance.The berÐDecember 2006lowsand a62% 15500. Thisisbasedonthe Septem- even furtherweakness. would confirmthistopand project A breakbelowtheMarchlowat16500 forming withtheMarchandJulyhighs. also possiblethatalargedoubleis on theMarchlowaround16500.Itis gets. Thefirstdownsidetargetisbased now, Figure2looksatdownsidetar- FIGURE 2:$RUT,DAILY. The nextsupportortargetis around Figure 1dealtwiththereversal,and How farmightanoversoldbounceextend? While Figure1examinedthereversal,2looks decline wouldalsobequitefeasible. over 25%sincelastJunebut a15% is entirelyfeasible.Theindex isup for ayearandmultimonthcorrection flow ofanuptrend.Theadvancelasted tions arepartofthenaturalebband by theFibonacciretracement.Correc- support here.Thisisfurtherreinforced year andthereisobviouslyalotof index bouncedoff15500twicelast See www.Traders.com formore. This articlewasfirstpublished on7/31/2007. November/December 2007

■

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. page 20 information about that market that you can have. information aboutthatmarketyou can pieceof you haveinyourpossessionthemostimportant upon, establishhow Ifyou can much thistrendberelied can the others. trend market thatstandsoutfrom alsohasatrue butevery times, cross-currents Ofcourseamarket has various oftrends atall has. it how much kineticenergy how much themarket istrending, doasatraderistoestablish thingyou can The mostimportant T T T about amarket. you know themostfundamentalthingyou needtoknow that, Knowing thedegree oftrend inthe market andmeasures it. bility, the What mined. deter- andisnotarbitrarily outoftheequationsthemselves arises thatquality however, Itisself-adjusting; market hasatthistime. waytoestablishhow new much trendiness a It isarevolutionary the of parts Thevarious yetalsoelegantandnatural. quite complex, Thecodeis outofitsalgorithms. twistsandturnsarising various T market atthattime. optimumthe greatest-probability stopplacement forthat thatrepresentslowing marketswithafaithfulhighfidelity fol- inincredible ways, turningandcurving shapes, derful STX You ofthe havetolookatcharts only amazingtosee. truly Also known asthe things: But foruseinanymarket. and applicable easytouse timeframe-neutral, tonon-arbitrary, close adjusting, itisself- LikeOceanStandard, software. of theOceanStandard Ocean Plus kind ofconsensus. “T I can say unequivocally thatyouandPat havecreated sayunequivocally I can “I “B he Ultimate he Ultimate Trend he Ultimate he Ultimate Trend he Ultimate Stop he Ultimate he Ultimate Stop he Ultimate T smr oefl.I’ sci. – is morepowerful...It’spsychic.” STX he powerofthenaturalorderisfarmoreevident.” find the STX quite amazing. Its uncanny ability is, ability Itsuncanny quiteamazing. find theSTX ¥Traders rwot9.%o l orohridctr.Ocean yourotherindicators. hrow out99.9%ofall TX i a oehn e:OceanPlus Jim hassomethingnew: atric nOenPu+ – inOceanPlus+. a masterpiece For moreinformation, visittheS&Cadindexat osytelat quiteimpressive...intuitive... to saytheleast, noeaint e o euiu ti.Ittakeswon- in operationtoseehow beautifulitis. T he Ultimate he Ultimate Trend is brilliant! is brilliant! informationinitisprofound. The are continually talkingtoeachotheruntiltheyreachare a continually oefl.vlal. – powerful...valuable.” and click onthe and click , F .com based on Ocean Theory, is a radical new extension new isaradical based onOcean Theory, or moreinformationplease visit BTX mayyoubehappy.com scntnl otn tef self-adjustingin moltingitself, is constantly . or , STX A .. LosAngeles –C.C., osi sals,withthehighestproba- does isestablish, BTX TTENTION Jim Sloman! (Stop Index), The Ultimate Stop is Stop TheUltimate Index), (Stop and Ocean (Bounded Trend Index)doesthat. Fans of T he Ultimate Stop he Ultimate D button atleft. B,NewYork .B., Traders.com/reader/ .. LosAngeles L.S., Ocean Plus ..Virginia S.C. . adds two + presents conflicting evidence. conflicting presents a) as follows: 1890. Theindicatorsonthechartare Av tion in the Dow Jones Industrial Jones Dow the in tion J F ended week the of events the Are by KoosvanderMerwe DJIA Analysis Of The A Long-Term OSCILLATORS correction? Or not? FIGURE 1:DOWJONESINDUSTRIAL AVERAGE,1890TO2007. b) a b uly 27 the start of a major correc- major a of start the 27 uly divergence the cator windowisthe know couldbepainful. but thepercentagecorrectionaswe the futurecorrectioncouldbeminor, near future.Onthechartdegreeof ing acorrectionshouldoccurinthe at thattime.Theindicatorissuggest- movement relativetothe logarithmic chartmeasuresprice of the1930s.Thisisbecauseasemi- correction comparedtothemeltdown the bubbleof2000appearsasasmall leading tothehighof2006.Notehow the highof1965,andlow1982 of 1929,thelow1944followedby price chartandclearlyshowsthehigh This indicatorissuperimposedonthe ended, andthatanewlong-term the correctioncouldpossiblyhave fell tothe30linesuggestingthat it brokeabovethe70line.Itthen indicator calledthehighof1929as erage? A look at the chart the at look A erage? Tradable: 30 70 A Fishertransformcalculationof The secondindicatorinanindi- moving averageconvergence/ Industrial Average(D rithmic chartoftheDowJones igure 1isayearlysemiloga- DWIX (M 1928 381.17 1929 ACD 59.93 rapid R ) ofthehighs. Dec. 1944 JIA SI 1951 ) from . This Dec. 1965 995.15 be lookedat. trend, aweeklyanddailychartshould a sellatanytime.Tofine-tunethe position arepresentandcouldturnto up, butindicationsofanoverbought ing thatthetrendforyearisstill A buysignalhasbeengiven,suggest- chart, hasnotgivenasellsignal...yet. c c prefer therapidR side isfartooearly,whichwhyI indicator asabuyindicator.Itssell the FishertransformofM rapid RSInotgivingasellsignal,and signal atthemoment,andwith As youcansee,itissuggestingabuy although thestochasticR pattern atpointAdoessuggestthat before amajorcorrectionoccurs.The is stillsomestrengthintheD would beinclinedtobelievethatthere highs stillinasidewaysmovement,I been given—yet. the 70line,andasellsignalhasnot we canseethatitiscurrentlyabove indicator purelyasasellindicator, moved abovethe50line.Using tor, whichonlybrokeandthen not suggestedatallbytheindica- start ofthe1975bullmarketwas as shownbythetwoarrows.The 70 linegivingasellsignalin1966, The indicatoronlybrokebelowthe correction onlyoccurredin1965. the signalwastooearly,as once againsuggestingcaution,but in 1951itcrossedabovethe70line bull marketwasstarting.However, a sellhasbeengiven. could welloccurnow,butonlywhen sideways beforedriftingdown.This signals, andtheindexthenmoved a andbabovehavegivendefinitesell a buysignal,theothertwoindicators R To conclude,theD 637.12 SI A My finalindicatorisa

with an8parameter.Iusethis Dec. 1982 See www.Traders.comformore. This articlewasfirstpublishedon8/2/2007. November/December 2007

■ The startofamajor SI

as asellindicator. Dec. 2006 JIA , onayearly SI stochastic

has given ACD JIA

METASTOCK Copyrights 2007 © Technical Analysis, Inc. All rights reserved. spot potential turns in the market. the in turns potential spot November/December 2007 I to index strength relative the Using by DavidPenn F RSI: Platinum’s WILDER’SRSI swing intheRSIoccurswhen idea ofthefailureswing.The esting abouttheRSI,though,was sis Ido. helpful forthekindoftechnicalanaly- (MACDH) andtheTRIXtobemore vergence/divergence histogram chastic andthemovingaveragecon- always foundoscillatorslikethesto- One ofthethingsIhavefoundinter- ailure Swing Tradable:

nothing personal;it’sjustthatI relative strengthindex(RSI).It’s have neverbeenahugefanofthe and seekadvicefrom anindependentadvisorifyouhave anydoubts. your depositedfunds,andtherefore youshouldnotspeculatewithcapitalthatcannotafford to lose. You shouldbeawareo WA FO WWW.FXCM.COM RNING: Trading foreignexchangeonmargincarriesahighlevelofriskandmay notbesuitableforallinvestors. existsthatyoucouldsustainalossof some orallofThe possibility REX CAPITAL FINANCIALSQUARE MARKETS, 32OLDSLIP, 10TH FLOOR, NEW YORK, 1.866.392.6647 NY10005 USA. P LN7 No Restrictions onOrderPlacement No DealerIntervention Spreads asLow as2Pips Trade News Events C H A RTP A TERNS C H A RTP A TERNS C H A RTP A TERNS C H A RTP A TERNS C H C H AA RTP RTP AA TERNS TERNS C H A RTP A TERNS C H A RTP A TERNS C H A RTP A TERNS C H A RTP A TERNS C H A RTP A TERNS C H A RTP A TERNS C H A RTP A TERNS that shouldhavealertedtraderstothe created abearish,negativedivergence high inMay.Thisandofitself index madeahighinAprilandlower At thesametime,relativestrength back, andmadeahigherhighinMay. market madeahighinApril,pulled failure swinginaction.Notehowthe Figure 1providesanexampleofa nerable toreversal. such, themarketisincreasinglyvul- Wilder calleda“failureswing.”As the markethasmadewhatJ.Welles (in theexampleofadowntrend),then above thehighbetweentwotroughs example ofanuptrend)orbackup low betweenthetwopeaks(in bought oroversoldterritory. only thistimefailingtoenterover- another movetowardtheextreme— then looktoseeifthemarketmakes back outofextremeterritory.Traders overbought oroversold,andthenpulls indicator reachesanextreme,either The chartofplatinumfuturesin If themarketmovesbackbelow For moreinformation, visittheS&Cadindexat within daystheplatinummarketwas entry —rallyingashigh1328 the marketmovedhigherondayof entry atapproximately1314.Although open, thetraderwouldhaveashort 1317.90. Goingshortthefollowing signal onMay17withacloseof the traderwouldhavegotten the market. can considermakingabetagainst does soonaclosingbasis,thetrader two peaks.Themomentthemarket below thelowpointbetween by themiddleofMay,haspassed zone, andinstead,movesdownand, not penetrateintotheoverbought how thesecond,lowerhighdoes the failureswingdevelops.Note gardless, however,wecanseehow pears aspartofadivergence.Re- gence. Here,thefailureswingap- without beingapartofdiver- ket tocorrection. vulnerability oftheplatinummar- Using theexampleinFigure1, Failure swingscanappearwithor 24-Hour Online CurrencyTrading Traders.com/reader/ f alltherisksassociatedwithforeign exchangetrading low pointbetweentheAprilandMaypeaks. by mid-May,whentheRSIfellbelow setting up.Thefailureswingwasconfirmed gence inthespring,afailureswingwas developing anegativeorbearishdiver- At thesametimethatJulyplatinumwas FIGURE 1:PLATINUM,JULYFUTURES,DAILY. 1277.80 andstillmovinglower. entry, Julyplatinumwastradingat in fullretreat.Fivedaysaftertheshort See www.Traders.comformore. This articlewasfirstpublishedon6/28/2007. Traders .com ¥ page21 ■

PROPHET FINANCIAL Copyrights 2007 © Technical Analysis, Inc. All rights reserved. target at12600. rently looms200pointsbelowthat (E double-top formation. double-top This coincides with a possible a with coincides This from its 50-day moving average. moving 50-day its from is currently trying to find support find to trying currently is DOUBLETOPS page 22 peak isapossibility. triple topviaathird enough stamina,a and thebullshave If thebounceisgood the ever-important200-dayE break belowthetrendline.Notethat trendline, asappliedtoadownside tern isthedistancefrompeakto would beatabout12800. looks goodandthecompletiontarget at about13250,thenthedoubletop falters andclosesbelowthetrendline third peakisapossibility.Ifinsteadit have enoughstamina,atripletopvia the trendlineisestablished. test asthesymmetrylooksgoodand port. Thisalsoservesasadouble-top F Average Industrial Jones Dow The by GaryGrosschadl Double Top Test The DJIA’s 877.889.0183 www.RemoteDayTrader.com Several indicatorsreflectquitea The completiontargetforthispat- If thebounceisgoodandbulls MA Tradable: HOLD BROTHERS Professional StockTrading HOLD BROTHERS Professional StockTrading ), whichrelatestoprevioussup- exponential movingaverage possible bounceoffthe50-day igure 1,adailychart,hintsat ¥Traders For moreinformation, visittheS&Cadindexat $INDU .com MA cur- • AwardWinningPlatform • Min$5000AccountDeposit • 100%Payouts • NoLicenseRequired • Lowas$2.00/1000Shares • 40to1Leverage movement index(A chart, theaveragedirectional bearish tone.Atthetopof the A not oftenweseeadoubletopof a somewhatrarepattern.It’s flow indicator(C sidering theChaikinmoney wary of,especiallywhencon- downside issomethingtobe the realquestion.Renewed double toptrendline. the previoussupportof This foretoldtheensuingtestof gences torecentpriceaction. ing pronouncednegativediver- has thefinalsay. trouble. Asalways,themarket trendline; aclosebelowspells explored. Keepyoureyeonthe sues beforefurtherdownsideis be surprisedifathirdpeaken- drive thisindextonewheights? have lefttheparty,whowill ish buyingpower.Ifthebulls shows asevereerosionofbull- strength index(R gence (M average convergence/diver- trend isover. pler terms,thepreviousbullish directional indicators.Insim- a bearishcrossofitsDIlines,or But isitreallyover?That All thingsconsidered,Iwill Below thechartmoving See www.Traders.comformore. This articlewasfirstpublishedon6/29/2007. DX

line. Thatclearlyledto Traders.com/reader/ ACD ) andtherelative MF SI ■ ) areshow- ). TheC DX ) shows MF if thetrendlinefailsonthischart. FIGURE 1:DJIA,DAILY. S S magazines •articlesbookssoftware t-shirts •subscribe renew•hotdeals! T T http:// There’s apossibledoubletopfortheDowJonesIndustrialAverage OCKS OCKS Get theexactinformation you wantonlineatthe Online Store Online Store store.traders store.traders &C &C OMMODITIES OMMODITIES November/December 2007 .com

TA07D7

STOCKCHARTS.COM Copyrights 2007 © Technical Analysis, Inc. All rights reserved. This willbeconfirmedif the R that thewaveVtopcouldbe inthe18000region. wave-iv correction.Thetrendline alsosuggests March 1966butthenusedthe lineassupportforthe (semilog) showsthattheD wave IIin1932tothelowof4.Aparallelline rather thanamajorone. ber 2002asaminorfourth-wavecorrection, labeled thecorrectionofMarch2000toDecem- tember 1974.ItisbecauseofthisthatIhave other timeabuysignalwasgiveninSep- came oversoldandgaveabuysignal.Theonly nings ofawaveV. what IbelievedwasaB-wavecouldbethebegin- question mark.Mynewwavecountsuggeststhat shown myoriginalwavecountinredwitha outlook aboutthewavecount.InFigure1,Ihave 500 wasinaB-waveupward—thatIchangedmy I ignoredwhenbelievedtheStandard&Poor’s divergence top. ELLIOTTWAVE November/December 2007 T We by KoosvanderMerwe So What Note howtherelativestrengthindex(R the waveIandIIcorrectionof1930s. from 1890. of theDowJonesIndustrialAverage(D Elliott Wave Count? Elliott Wave 3 2 1 gree. further thanthefourthwaveoflesserde- in afive-impulsewaveandcouldretrace bull cycle,theAandCwavesshouldretrace ment —thatis,attheendofalong-term 3. devastating Cwave. determining whenwecanseeanendtothe nevertheless itcanbeusedasaguidelinein been moresuccessfulinanalyzinggold,but 38.2% oftherisewave1to5. 2. and viceversa. and beacomplicatedwaveif2issimple, should falltothefourthwaveoflesserdegree should beequalinlength,andthatwave4 greater thanwave1.Thatwaves1and5 this Imeanthatwave3shouldbeequaltoor 1 bull cycle. from 1974toJuly2000isamajorlong-term Do notethetrendlinedrawnfromlowof To recapthebasicwaverules: So althoughin myfirstchartIamshowing an Figure 2isasemilogchartandclearlyshows To answerthisquestion,letuslookatachart Tradable: should stick to the rules. the to stick should Finally, inamajorA-B-Cwaveretrace- In time,anABCcorrectionshouldbe The wavepatternmustlookright. right.” Itisbecauseofthisrule—onethat analysis is“Thewavestructuremustlook he mostimportantruleofElliottwave

The questionarisesastowhethertherise SPXandDWIX Is Is The True JIA

penetrated itin SI

This rulehas completes a SI ) be- JIA By ) FIGURE 1:S&P500. FIGURE namely, itmust lookright?Yes,inmyopinion it the wavecountmeetfirst ruleofElliott— 61=260). WaveVhasfarexceeded thislength.Does very high.Wave1,infact,was only260points(321- rise from1974to2000,thefifth waveshouldnotbe tion, andbecauseofitsdepth, a50%correctionofthe obvious thatthe2000correctionisawave4correc- time lineissuggestingApril2010. a dateofDecember2010astop,theFibonacci chart oftheD S&P 500chartwithawavecount,thelong-term vanced G of 1684assuggestedbytheM has stillsomewayuptogo,possiblythelevel FIGURE 2:DJIA. Returning tothechartofS&P500,itisnow ET . WhereastheM Here’s theultralong-termDJIAsemilogchart. JIA

This showspossiblecyclicalturningpoints. is suggestingthattheS&P500 I Ju I II ne 1932 OB II

line issuggesting 1 1 OB 2

2 line ofAd- i ii iii 3 A? iv v Ju 4 ly 5 III 2000 does. Thechartalsosuggeststhatthemajor A shown onthelong-term D 1974, thedatesoffourth waveoflesserdegree where betweenthehighof 1966andthelowof correction, whenitoccurs,shouldretracetosome- Oct. 2002 814.41 IV 3 suggesting April2010. the Fibonaccitimelineis December 2010asatop, suggesting adateof Whereas theMOBlineis See www.Traders.com formore. This articlewasfirstpublishedon6/26/2007. B? Sept. 1974 4 1337.40 March 1966 i ii March 2000 JIA Traders chart. iii Dec. 2002 iv .com ■ v ? 5 ¥ page23 BC

´ ¥Traders

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. naled a correction. a naled in PowerShares QQQ Trust. QQQ PowerShares in sig- pattern shoulders & head white soldiers.InFigure1,Q This patternisaderivationofthree advance block candlestick pattern candlestick block advance a before month a almost lasted HEAD&SHOULDERS page 26 A an with blocked is rally bullish The by ChaitaliMohile In QQQQ Advance Block 100 NASDAQ the in rally The by DavidPenn Shoulders Top Intraday Head& The QQQQ’s indicating nervous participants. candles failtoclosenear ahigh, whereas herethesecond and third candles endclosetotheirdays’ highs, in threewhitesoldiersall the three appears inadowntrend.In addition, an uptrend,whilethesoldierspattern terns isthatadvanceblockappearsin The basicdifferenceinthetwopat- ent fromthethreewhitesoldiers. This actionmakesthepatterndiffer- longer, showingweaknessintherally. well, buttheuppershadowsaremuch ond andthirdcandleswerebullishas with asmalleruppershadow;thesec- first candleinthecircleisverybullish nential movingaverage(E level, whichisbelowthe50-dayexpo- attempting abullishrallyfromthe$47 CANDLESTICKCHARTING Tradable: Tradable: ¥Traders n advanceblockisabearish that appearsinanuptrend. reversal candlestickpattern QQQQ QQQQ .com MA QQQ ). The

was ish move,violatingthe50-dayE 3). TheM (12, 26,9)andthestochastic(14,3, Q in theafternoonofJuly24,with down fromthispatternoccurredearly higher peak(“head”).Theactualbreak- peaks (“shoulders”)separatedbya tern hastherequisiteshapeoftwo days betweenJuly13and24,thepat- likely tofind.Developingoverthe oversold area. Theadvanceblockpat- carrying thestochastic(14,3, 3)tothe near the$50level.Thepricenosedived, bought whenthepricewas hovering below thezeroline. rally. Thehistogramhascontinued zero line,pouringweaknessintothe indicator hasalsomovedbelowits at theendofJuly.Currently, negative afteritsbearishcrossover E its effect.Leavingbehinda50-day bullish power. The profit-takingactionshowslosing the extremesoftwotradingsessions. witnessed someprofit-takingnearthe tially, buttheseconddayandthird $46.98 withgoodbullishstrengthini- ward rallyfromthesamesupportof the stock.Q bulence weakenedthefirstpullbackin entire marketfollowedbyglobaltur- resistance. Overallweaknessesinthe I convergence/divergence (M tion, refertothemovingaverage $46.98. Toidentifythefuturedirec- to down,andtheQ $4 ontherallydoesnotturnanuptrend in thestockwassustained.Thelossof market slump;otherwise,theuptrend momentum cameupwiththeentire ward moveat$50.66.Thisnegative Q restrictive surveysample. index funds—whichareafarmore traded funds—evenexchange the patternsIfindareinexchange 5000 forchartpatterns.Butmanyof action inallthestocksofWilshire canvassing alloftheintradayprice would beonethingifIweresimply compared todailyorweeklycharts.It and head&shouldersinintradaycharts days beforeresumingthedecline. rather, m hour. Themarketbounced—or, MA QQQ QQQ The stochastic(14,3,3)was over- Advance blockhasalreadyshown In Figure1,Q The head&shoulderspatterninthe terns suchastriangles,diamonds, many ofthetraditionalchartpat- ’ve hadmuchbetterluckfinding

support, Q

was asclosetoidealyouare falling nearly60centsinan oved sideways—forafew ACD QQQ

(12, 26,9)ishighly

QQQ started asecondup- QQQ QQQ

started adown-

dipped below

began itsbull- ACD MA ) back toitslowpivot. FIGURE 1:QQQQ,DAILY. after asthelowfromstage1of1- of thereversalfollowedshortlythere- hours laterrepresentedstage2.Stage3 the 1-2-3trendreversal,andbounce morning ofJuly24toformthe“1” The Q reversal (Figure1). with the1-2-3trend ders patterncoincides how thehead&shoul- 11 justsouthof48.50. morning lowfromJuly potential supportatthe this coincideswith 48.50 area.Notethat move tothe48.60Ð project aminimum about 49.64,wecan a breakdownlevelat tern, about$1.00,and head &shoulderspat- Given thesizeof like $46andthe200-dayE to seemoredownside.Support levels from lateJuneonthe that supportedtherally below thetrendline be observed. chart, PowerSharesQ tors haveabearishindication. to turnback.Socurrently,bothindica- oversold positionandtheindicatorhad tern stoppedthisupwardtripfromthe In addition,note With thebearishscenario on the QQQ

broke down

■ QQ Due totheadvanceblockinuptrend,bullishretraced

Trust islikely also completea1-2-3trendreversal. the head&shoulderspattern—anditsbreakdown month-long advanceintheNASDAQ100.Notealsohow head &shoulderstopemergedattheendofanearly FIGURE 1:NASDAQ100UNITTRUST(QQQQ),HOURLY. MA

should downside. 2-3 trendreversalwastakenouttothe See www.Traders.com formore. This articlewasfirstpublishedon8/17/2007. See www.Traders.comformore. This articlewasfirstpublishedon7/27/2007.

■ November/December 2007 This

STOCKCHARTS.COM PROPHET FINANCIAL Copyrights 2007 © Technical Analysis, Inc. All rights reserved. Dow transports. Dow diamond consolidation in the in consolidation diamond THEDIAMOND November/December 2007 B a up sets breakout failed A by DavidPenn Diamond Becomes Handle Cup With consolidation pattern:adiamond(Figure3).Dia- handle pattern,butitalsoseemedtocreateanother in theDowtransportsinvalidatedcupwith any moodtobreakdown,either. have beenreadytobreakout,theywerenotyetin helped suggestthatwhilethetransportsmaynot market frombreakingdown. beaten onthebreakout,steppeduptoprevent third weeksofJune,yetbuyers,whohadbeen ties revealedthemselvesinthefirst,second,and the lowsgivenkeyopportunities.Theseopportuni- ity onthepartofsellerstoclosemarketatornear featured longlowershadows,suggestinganinabil- Weekly candlesticklinesinthefirsthalfofJune ping themovehigheronfirstattempt(Figure2). pushing themarketlower,ratherthanmerelystop- ness onthepartofsellerswhenitcameto Figure 1. back intotheconsolidationrangebymid-June.See whelmed thebreakout,sendingmarkettumbling range inlateMay.However,sellersquicklyover- May 31,2007). in general(“ACupWithHandleInTransports,” the group—andperhapsforstocks Dow transportswasabullishsignfor large cupwithhandlepatterninthe led tonewall-time highsinthetransportsbymidmonth. mond pattern.Abreakoutto the upsideinearlyJuly ports contributedtowardthedevelopment ofthisdia- The failedbreakoutandpullback intheDowtrans- FIGURE 3:DOWJONESTRANSPORTATION AVERAGE,DAILY. The failedbreakout,pullback,andresumption This weaknessintheweeklycandlesticklines But theweeklychartreflectedunderlyingweak- The transportsindeedbrokeoutofaconsolidation Tradable: ack inlateMay,Iwrotean tage thatsuggesteda article forTraders.comAdvan-

$TRAN warning ofthepotentialforfurtherweaknessgoingforward. days ofJune.AlowerlowwascreatedinJunevis-à-visMay, breakout fromthecupwithhandlepatternfailedinfirstfew FIGURE 1:DOWJONESTRANSPORTATIONAVERAGE,DAILY. How farmightitgo?Thewidthofthediamond transports wouldresultinabreakouttotheupside. hope ifnotbelievethatthediamondinDow reversal (alsobullish),technicianshadreasonto the failureoffailedbreakouttoresultinatrue cup withhandlepattern(whichwasbullish)and patterns. However,inthecontextofprevious triangle, serveasbothcontinuationandreversal mond patterns,liketheircousinsthesymmetrical That breakouttotheupsidedidinfactoccur. • SubscribetoOurFree“Trend Weekly” E-Letter • Target 100%Gains withMinimalRisk • Your PortalforProfits W allStreetWindow.Com • InnovativeCompaniesinNicheMarkets • CupandHandleChartFormations • ChartsWith Top Relative Strength • 100%RevenueGrowth For moreinformation, visittheS&Cadindexat Go toWallStreetWindow.Com • TheGreatTraders FollowtheTrends • 16,000Subscribers Can’t beWrong • We IdentifyStocks inTrend Sectors The

PROPHET FINANCIAL market lowerinthewakeoffailedbreakoutlateMay. suggest weaknessonthepartofsellerstryingtopush long lowershadowsontheweeklycandlesticklinesinJune FIGURE 2:DOWJONESTRANSPORTATIONAVERAGE,WEEKLY. Penn, David[2007].“ACupWithHandleInTrans- S upside targetnear5,540. breakout atapproximately5,215,thissuggestsan pattern isapproximately325points.Witha UGGESTED ports,” Traders.comAdvantage,May31. Traders.com/reader/

READING See www.Traders.comformore. This articlewasfirstpublishedon7/16/2007.

■ Traders .com ¥ page27 The

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. likely move? likely its 14,000 high. What is the next the is What high. 14,000 its has declined some 800 points from points 800 some declined has ANDREWSPITCHFORK page 28 T Average Industrial Jones Dow The by GaryGrosschadl Pitchfork View The Dow Jones violated. Shouldafuturetestofthis median lineuntiloneofthoselinesis tween themedianlineandupper continued risewilltendtostaybe- persists asthispitchforkpointsup.The median lineholds,thenabullishbias just considerthepitchforkitself.Ifthis ing averagelinesforthemomentand ward fromhere?Let’signorethemov- at thismedianline. Here weseeaperfectbounceattempt advance —aftertheturnstartsat14000. Remember thatthiscanbeplottedin reaches thecentermedianline. or thelowermedianlineeventually move offeithertheuppermedianline of pitchforktheorymaintainsthata and resistancelevels.Oneofthe“rules” dian linesrepresentinglikelysupport software automaticallyplotstheme- turning points1,2,3)andthenthechart turning pointsarechosen(inthiscase, pitchfork tool.Withthismethod,three method, alsoknownastheAndrews tance comesfromtheAndrewsline of showingpossiblesupportandresis- high (Figure1).Onelesscommonway this chartof12,000toagiddy14,000 What arethepossibilitiesgoingfor- Here wehavetheperfectexample. Tradable: Creat your free trader SEAT now! SEAT trader free your Creat nificent runfromthelowon watched indexshowsamag- he dailychartofthismost- ¥Traders For moreinformation, visittheS&Cadindexat $DJIA .com index (R trading daysago.Therelativestrength shows asellsignaloccurringseveral test oftheever-important200-dayE mind mostlikelywouldbringabouta in anothermedianlinetestbutmy side testbeingthe50-dayE being madewiththeimmediateup- under way. condition withabounceattemptlikely minds tradersthatthisisanoversold resistance goingforward. Watch this50levelasapossiblekey 70 level,whichfellbelowthe50level. day E enough conditions,shouldthe200- currently at12,800.Underbearish- E index mustcloseabovethe50-day sustainable vs.short-lived,thenthe this bounceoffthemedianlineistobe ered importantoverheadresistance.If to thedownside,itshouldbeconsid- of thisrise.Withitnowbeingviolated age, heldsupportduringthemajorpart sitive sisterofthesimplemovingaver- moving average(E average lines.The50-dayexponential between thethreemedianlines. will oftenplaytheanticipatedmoves is notviolated.Traders,beingtraders, intact aslongthelowermedianline The biggerpicturesaystheuptrendis be apulltowardthelowermedianline. center medianlinefail,thentherewill convergence/divergence (M Below thechart,movingaverage DIs (directionalmovementindicators). index (A stance witharisingaveragedirectional movement indicatorshowsabearish At thetopofchart,directional trading target. median linenear12,200couldbea MA In summary,abounceattemptis Finally, thestochasticoscillatorre- Now let’sfactorinthosemoving Several indicatorsareconsidered. . FailureatthisE MA DX SI

Traders.com/reader/ ) showsadeclinefromthe give way,thenthelower ) betweenbearishlypoised MA MA ), themoresen-

would result MA . Fail- ACD MA ) and resistance. lines forfurtherguidanceofsupport occur, keepaneyeonthosemedian to testthe200-dayE ure therecouldbringaswingdown the medianline. FIGURE 1:$INDU,DAILY. for them,too! for them,too! publications, [email protected], orseewww.Traders.com formoreinformation. You readour publications, You readour trading, tradingpsychology, options,cycles...andmore... charting, tradingsystems,moneymanagement,intraday now write now write Fax resumeto(206)938-1307, call(206)938-0570,email If youare knowledgeableabouttechnicalindicators,

■ MA This Andrewspitchforkshowsaperfectbounce(sofar)at . Shouldthat we’d liketohearfrom you! See www.Traders.comformore. This articlewasfirstpublishedon8/3/2007. November/December 2007

STOCKCHARTS.COM Copyrights 2007 © Technical Analysis, Inc. All rights reserved. many timesduring thevolatilerally. level, andthissupportwas tested strongest supportwasaround 125 the pricechart.Thelowermost and (14) againstthehigherhigh madeon contained prices for months. for prices contained Index range. Index has that channel trend a of end $XAU chart is likely to contract the contract to likely is chart $XAU low the to move stocks service oil November/December 2007 on therelativestrengthindex (R began withthenegativedivergence The downwardjourneyoftheindex since May2006withahighof170. T the on triangle symmetrical The by ChaitaliMohile Narrower Range Index Move In Gold &Silver CHARTANALYSIS M stalls, prices oil in advance the As by DavidPenn T T StocksOil Service TRENDCHANNELS modity iscorrecting,traderstakethat are movinghigherwhilethecom- Generally, whencommoditystocks mode (thatis,AprilintoearlyMay). that crudeoilwasinacorrection channel atpreciselythesametime were breakingoutofanoldtrend slip from68to61(basisJune). spring correctionthatsawcrudeoil This wasinthewakeoflate would haveinmakingnewhighs. rend Channel est Support Of est Support Interestingly, oilservicestocks Tradable: Tradable: he Gold&SilverIndex ($X ing ahighlyvolatilesession y previouslookatoiland challenge thatcrudeoil oil stocksconsideredthe AU OIH,CLU7 $XAU METALS &ENERGY METALS &ENERGY ) hasbeenundergo- SI ) divergence (M major support. low 135,the125levelwillbe trapped inthis10-pointrange.Be- level tobeobserved.Tradesmayget the resistanceand135issupport further. InFigure1,the145levelis will movecloser,tighteningtherally resistance lineandthelowersupport reaches thematuritylevel,upper chart (Figure1).Asthetriangle symmetrical triangleontheweekly further narrowedtherally,forminga The lowerhighsandhigherlows average andthe 50-daymovingav- port levelatthe200-day moving move of134-144established thesup- rally. Theindexinitsrange-bound seen asmajorsupportthroughout the level of50. ing bullishstrengthwithasupport positive sign.TheR has sustainedabovethezerolineisa to itstriggerline,butthefactthatit dicator hasbeenmovingveryclose also showingavolatilerun.Thein- contained pricesintheO stocks brokeoutinthespringandhas channel beganwhenoilservice more recenttrendchannel.This down towardthelowerendofits to seeoilservicestocksmovingback moving higher,itisoflittlesurprise pear injustthesesituations. Opportunities forreversaloftenap- weakness onthepartofbulls. often signalssignificant When thishappens,it through totheupside. back, failingtofollow to-date highsonlytopull crude oilsetnewyear- to bepassedinsofaras ing year-to-datehighs. crude oilwasbacktest- crude, andbymid-June, had beenformedin creasingly asifabottom late Mayitlookedin- tures modity stocks. bullishness ofthecom- ity tocatchupwiththe ers expectthecommod- for abullishsignal.Trad- The movingaverageconvergence/ In Figure2,the134-135level is With crudeoilfindingtrouble But thattestremains In away,crudeoilfu- did catch up.By ACD SI ) (12,26,9)is

(14) isindicat- IH

ever since. being testedforsupportlateinJune. trend channelhascontainedOIHpricesbutis initial, three-monthtrendchannel.Thenew the springof2007asitbrokefreefroman OIH developedamoreaggressiveuptrendin FIGURE 1:OILSERVICEHOLDRSTRUST,DAILY. The secondapproachistoplaythe lower boundaryofthetrendchannel. to exitonthefirstclosebelow a stopbelowthetrendlineordecide trend. Buythemarketandeitherplace a testoftrendline.Thefirstispro- the endofmonth. and nowappearstobetestedagainat channel wastestedonceinearlyJune The lowerboundaryofthistrend movement further. FIGURE 1:$XAU,WEEKLY. There aretwomainwaystotrade The symmetricaltriangleformed cannarrowtheindex

PROPHET FINANCIAL picture foroilandstocks. stocks topaintanintermediate-termbearish highs combineswithapullbackinoilservice follow throughaftermakingnewyear-to-date erating totheupside.Butcrudeoil’sfailure as sharesofoilservicecompanieswereaccel- DAILY. FIGURE 2:CRUDEOIL,SEPTEMBERFUTURES, as 155. channel couldtaketheO 14, abreakdownbelowthetrend nel. Withachannelheightjustshyof the lowerboundaryoftrendchan- you wouldshortthefirstclosebelow potential breakdown.Inthisscenario, Crude oilfuturesbottomedinMay,just See www.Traders.comformore. This articlewasfirstpublishedon6/27/2007. ■ Traders .com IH

to aslow ¥ page29

STOCKCHARTS.COM Copyrights 2007 © Technical Analysis, Inc. All rights reserved. 9) isshowingapositivedivergence, page 30 erage. Currently,$X the Gold&SilverIndex. indicating anarrowrangein resistance onFigure2are Figure 1andthetrendline The symmetricaltriangleon as finalsupport.TheM ing averageasfirstsupport,and134 142 (resistance),the200-daymov- ure 2),thelevelstobewatchedare the trendline.Ondailychart(Fig- resistance, asindicatedbydrawing and isreadytomovetowarditsupper the 50-daymovingaveragesupport T the winningteam in bothstocksandcommodities,canbeutilized indaytradingaswell aslongtermtradingsuccessfully. The Profitunity Trading Group offersover 40years oftradingexperiencetoourclients.Our methodologyworks T estimonials weresenttoProfitunity Trading Groupfrom actualinvestorstradingtheProfitunityTrading Groupsystem.Thereisariskoflossintradingcommodities. ¥Traders AKE • Designed forCommodities&Stocks • Free Indicators Included inCourse • Psychological Assistance • Free Ongoing Technical Support • 2-Day Private Tutorials • NEW 8-Week Home Study Course We The holistic approach to trading and investing. and trading to approach holistic The offerawiderangeofservices: .com C AU ACD

stands on

(12, 26, and takecontrolofyour financialfuture. No onewilltakecare ofyourmoney betterthan ONTROL are bullish. both indicatorsonthecharts is ahigh-risktrade,though The maximum10-pointrange in theGold&SilverIndex. 2 areindicatinganarrowrange trendline resistanceonFigure angle onFigure1andthe during thebullishrally. weekly chartcanbemarked upper resistanceof145inthe can beexpected.Theultimate so somekindofbullishrally Thus, thesymmetricaltri- See www.Traders.comformore. This articlewasfirstpublishedon6/29/2007. For moreinformation, visittheS&Cadindexat ■

V OF isit usat:WWW.PROFITUNITY.COM Y marginal bullishrally. FIGURE 2:$XAU,DAILY. OUR F ov open contracts. In lessthansix months Ihave 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: The positivedivergenceintheMACD(12,26,9)mayresulta etaStock ™ •eSignal ™ • TradeStation ™ F • November/December 2007 UTURE ™ J you! oin !

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. a. as follows: triggered yet.Myindicatorsusedare buy signalisclose,ithasnotbeen before buying. level. Wecouldwaitforalowerlevel it doesappeartobetouchingthe20 oscillator isnotquiteoversoldalthough Donchian channel,butthestochastic does appeartobetouchingthelower signal. Atthemoment,i-Share (8,10) isoversoldandgivenasell channel isreachedandthestochastic signal iswhentheupperDonchian and hasgivenabuysignal.Asell (8,10) isbelowthe20horizontalline reached the Donchianlowerbarhasbeen all casesIhavesuggestedabuywhen are suggestedbuyandsellpositions.In b. correction during the uptrend. the during correction The sector is likely to witness a witness to likely is sector The chart has formed a rising wedge. rising a formed has chart bought area, and the daily price daily the and area, bought so. thinking November/December 2007 XLE has moved into the over- the into moved has XLE by ChaitaliMohile More Correction Undergo Some Sector May Energy Select WEDGEFORMATIONS F to close is i-Share XAU The by KoosvanderMerwe Nibble AtGold? Is It Time To OSCILLATORS gested abuysignal. lower level,ithasnotyetsug- the indicatorisplayingwith Fisher transformoftheM suggesting weakness. the highs.Thisindicatorisstill Figure 2suggeststhatalthougha Tradable: Superimposed ontheindexisa Rapid R blue andredarrowsonthechart Donchian channels.(20,0).The igure 1showstheX and SI

the stochasticoscillator XAU-T

modified. Although ACD AU w

of ith 50-day E made. Therallythatbegan fromthe support, thoughahigherhigh wasalso than onceatthislevel,forming astrong level. Inaddition,priceretraced more This supportwastestedonceatthe67 shows theupwardpathofsector. exponential movingaverage(E low as$60upto$74.The50-day wedge. Arising wedgeinanuptrend F c. FIGURE 1:XAUI-SHAREWITHDONCHIANCHANNELS. gold? Notyet,butyoucouldtasteit. the nearfuture.Isittimetonibbleat because asignalcouldbetriggeredin given asofyet,butitisworthwatching promising, abuysignalhasnotbeen Although the X Tradable: The stochasticR ning itsbullishrallyfromas tor inastronguptrendbegin- igure 1showstheenergysec- MA See www.Traders.comformore. This articlewasfirstpublishedon8/24/2007.

support formedarising XLE AU SI

is stillfalling. i-Share looks MA ■ ) rally. Buton thedailychart, bought levelandcarryonthe bullish indicator canmoveflatat the over- pressure onthepricecorrection. This overbought area,whichhas added throughout therally. more volatilemovethantheprice to itslowpivot.Thevolumeshowsa As aresult,thepriceislikelytoretrace firming theformationtobeareversal. already begunitsdownjourney,con- daily chartinFigure1,thesectorhas continuation patternaswell.Inthe Sometimes, thisformationcanbea can bringatemporaryfallintheprice. just yet. FIGURE 2:XAUI-SHAREWITHVARIOUSOSCILLATORS. The stochastic(14,3,3)is inan The blueandredarrowsaresuggestedbuysellpositions. (A average directionalmovementindex retrace toitstriggerlinesupport.The (12, 26,9)hastippeddown,soitmay age convergence/divergence(M the bullishrally.Themovingaver- flat, thusindicatingtheweaknessin stochastic (14,3,3)failedtomove 50-day exponential movingaverage $2 fromthe$74level.Therefore, the correction. even thoughpricemaywitness some a result,theuptrendcould sustain, sure andaweakbearishpressure.As uptrend withreducingbullishpres- The sectorhasalreadymoved down DX ) (14)indicatesadeveloping A buysignalmaybeclose,butnot Traders Not abuy signalyet bu t it'scloseto being one .com ¥ page31 ACD )

METASTOCK ADVANCEDGET Copyrights 2007 © Technical Analysis, Inc. All rights reserved. strength. Thereafter,theA tional index(+DI)gainingthetrend (14) pulledup,withthepositivedirec- 20 level.TheM fered goodbuyingopportunityatthe cordingly, thestochastic(14,3,3)of- ume andstrongindicatorsupport.Ac- ing thisresistancerequiredheavyvol- low as$50in2006.Asaresult,violat- resistance, whichpulledthepriceas level andthe60wasaverystrong of 54-60.The54levelwasasupport age directionalmovementindex(A had abullishcrossover,andtheaver- traders trade the top in ABX. in top the trade traders f chastic (14,3,3)ishighlyoverbought the previousone.Inaddition,sto- from $68to$74ismorevolatilethan this currentlevel,astheextendedrally a trader,Iwouldbemorewatchfulat handsome profitof$14totraders.As good developinguptrend. moved steeplyupward,indicatinga resistance, new highs, and a and highs, new resistance, page 32 I How indicators! no Ma, Look, by DavidPenn 2B Top Barrick Gold’s REVERSAL S should beobserved. tion, butthelowestsupportof$67 rection isnotexpectedonthisforma- level forthiscorrection.Aseriouscor- Barrick Gold,Idecidedtotake alook. Not havingpaidmuchattention to week highsasrecentlylast week.” a goldstockthatwasmaking “new52- Barrick Gold(A up relativelywell,Schiffpointedto noting thatsomegoldstockshadheld the caseforgold,ifnotgoldstocks.In Schiff ofEuroPacificCapitalmake the analysis,nottoreplaceit. technical indicatorsaretoolstoassist often refreshingtoberemindedthat as thenextmarkettechnician.Butitis love mytechnicalindicatorsasmuch charts withouttechnicalindicators.I (E ailure to follow through helped through follow to ailure PDR The upwardrallyfrom60gavea MA In 2007,theEnergySelectSector That excursion into52-week-high I waslisteningtheotherdaytoPeter Tradable: spend sometimelookingatprice helpful thingsatradercandois ’ve saidbeforethatoneofthemost

) willbeanimportantsupport (X ¥Traders LE ) bottomedoutintherange ABX BX ACD .com ) asanexampleof

(12, 26,9)also DX

(14) DX ) shorts, whowould havebeenableto close wasaconfirming forthe previous twonew-highssessions. That high closedbelowthelows ofthe the marketfollowingsecond new their signaltogetshort. aggressive traderswouldnowhave need toreducetheirexposure.More the 2Bwouldhavewarningthey Traders whohadbeenlonggoinginto high), thena2Btopwouldbeineffect. both theinitialandsecondnew 2B pattern(whichincludesthelowsof versed andclosedbelowthelowof tinue movinghigherand,instead,re- market forBarrickGoldfailedtocon- the opportunityfora2Btop.If market hadfallenback.Thiscreated intraday newhigh,butbytheclose, The secondadvancenotchedan again inlateJulygoingintoAugust. back sharplybeforevaultinghigher week highs(Figure1).Thestockpulled near-vertical pathenroutetonew52- lied fromlateJuneintoearlyJulyina indicators areverypositiveandsup- ward rally(Figure2).Theothertwo rect tocreatesomespacefortheup- longer period,sotheindicatorcancor- at 91levelandhasmovedflatfora early inthechangeaspossible. or evenaprofitablecorrection—as best waystocatchachangeintrend— Victor Sperandeowrote,oneofthe is makingatop,the2Bis,astrader setups: the2B.Foundhereasamarket of onemyfavoritetechnicaltrading territory providedanexcellentexample retrace toitslowpivot,buttheexistinguptrendwill FIGURE 1:XLE,DAILY. The confirmationcameswiftly as Note howBarrickGold(A The risingwedgecanmakeprice BX ) ral- both timeframes. the risingwedgeandindicatorson correction intheX port theupgoingrally. to beginreducing exposure.Sure loud signalfortradersonthe shortside ket movedintotheclose. mentum wasevaporatingas themar- August 16showsthatthebearish mo- shadow onthecandlestickline (note thevolume),andlonglower day turnedouttobeasellingclimax gust 13,thestockwasinfreefall.This day aftertheconfirmedshortonAu- mediately. Bythemorningofthird of 32. the mid-July,intrapeaklowjustsouth on thedistancefromtopnear35to A represented anareaIbelieved money options).The32.50level still tendtowardout-of-the- is oftennotrecommended,I were tradingat0.35(althoughit while theSeptember30calls calls weretradingatabout1.00, August 13,theSeptember32.50 mon stock.Asofthecloseon buyer sinceIdonottradecom- through thelensofanoption session (August13at33.59). Gold asoftheenddayonthat take positionsagainstBarrick Barrick Goldcouldfalltobased represented anareaIbelieved was legitimate.The30level BX To conclude,Iexpectasmaller This kindofcandlestickpattern isa Barrick Goldfellapartalmostim- I liketolookatthesetrades

had tofallifthe2Btop

STOCKCHARTS.COM result, thepricemayundergosomecorrection. take adipforcreatingspacebullishrally.As FIGURE 2:XLE,WEEKLY.

■ LE

with respectto short positions. sents theconfirmingcloseforthosetaking tion inmid-August.Thehighlightedovalrepre- month 2BtopinABXsignaledasharpcorrec- FIGURE 1:BARRICKGOLD,DAILY. The flatstochasticislikelyto high as2.00. with anintradayprintonAugust 16as ber callshadgonefrom0.35to1.60, the 16thashigh3.80.TheSeptem- 1.00 to3.00,withanintradayprinton September 32.50callshadgonefrom As ofthecloseonAugust16, their welcomerushedtocover. short-side traderswhohadoverstayed moving almostverticallybackupas enough, withindaysBarrickGoldwas How didtheoptionsplaysturnout? See www.Traders.comformore. This articlewasfirstpublishedon7/23/2007. See www.Traders.com formore. This articlewasfirstpublishedon8/27/2007. November/December 2007 ■ A month-on-

PROPHET FINANCIAL Copyrights 2007 © Technical Analysis, Inc. All rights reserved. November/December 2007 divergence (M 10-year TreasurynoteinFigure1. in thehourlychartofSeptember 5.25 inamonth.Thatsurgeisreflected surged fromlessthan4.6tomore the yieldon10-yearTreasurynote the September Treasury note. Treasury September the gr T histo- MACD the in peaks Lower by DavidPenn The BondBounce Divergences And Negative BOND&INTERESTRATE already providedsomehelpfulguid- www.winningedgesystem.com am accompany the advance in advance the accompany am The movingaverageconvergence/ Tradable: Comprehensive manualand coaching. Weekend andlive Professional traderteaches Winning EdgeS&P gee inthefirsthalfofJune,as interest ratesreachedanapo- he specterofrisinglong-term Private tutoringandlive T Winning EdgeDayAnd Swing Trading Signals proprietary software. proprietary FREE ONLINE rading Systems trading workshops. S ECTOR Day &Swing you hisrenowned S ECTOR S ECTOR SEMINARS 1-800-500-5207 TYU7 ACD ) histogramhas Precise, Simple T rading System & Profitable M ing higherandresumingtherally. nential movingaverage(E T-note dippedbelowthe20-periodexpo- to thisdivergenceaswell,theSeptember to itslaterstages.Themarketwassensitive divergence fromthebeginningofpeak itself featuredaveryshort-termnegative will continuetomovehigher. divergence isastrongsignalthatprices togram thatdevelopsafterthepositive vergence, andthemassivesizeofhis- bottom wasanticipatedbyapositivedi- ance fortradersonthehourlychart.The for thetimebeing. then atleasttheconclusionofuptrend low, signifyingifnotanewdowntrend, close belowthislevelwouldcreatealower The criticalsupportlevelisat104.5.A sal or,ataminimum,sidewayscorrection. makes therallymoresusceptibletorever- ACD But thenegativedivergencesin That initial“massive”histogrampeak

histogram continuetomount,which For moreinformation, visittheS&Cadindexat See www.Traders.comformore. This articlewasfirstpublishedon6/29/2007. ■ MA ) beforemov- move higherislosingmomentumtotheupsideandripeforcorrection. shorter andpeaksintheMACDhistogram.Thissuggeststhat bonds thatbeganinthefirsthalfofJuneisincreasinglycharacterizedby FIGURE 1:USTREASURYNOTE,SEPTEMBERFUTURES,HOURLY. Traders.com/reader/ Traders .com The bouncein ¥ page33

PROPHET FINANCIAL Copyrights 2007 © Technical Analysis, Inc. All rights reserved. page 34 The WyckoffMethod. Also available:ChartingTheStockMarket: past S&Carticlesbyyear,through1999. Completely indexedbookcompilationsofall Traders’ Series Professional Technical Analysis of of Analysis Technical what you trade or your level of experience, S what youtradeoryourlevelofexperience, else —pageafterofpracticalsystemsandstrategiestakenstraightfromthetradingfloortechnicalanalysts.Nomat technically, mentally,andpsychologically. CAN’T WAIT? ORDERONLINE AT: SHIPPING &HANDLINGFORBOOKS Outside US 2nd DayAirUPS(48states) Ground UPS US Orders Qty. ◆ ◆ ◆ ¥Traders Most booksaresoftcover. S&C onDVD pgs.) S&C onDVD 204 (6"x9", DVD S&C on Market S&C onDVD Stock The S&C onDVD Charting Volume 17 Volume 16 Volume 15 Volume 14 Volume 13 Volume 12 Volume 11 Volume 10 Volume 9 Volume 8 Volume 7 Volume 6 Volume 5 Volume 4 Volume 3 Volume 2 Volume 1 DVD isWindows2000/XP/Vista http://www.Traders.com/Documentation/library.html For descriptionsofcontents,goto Chart formations Indicators &oscillators Computerized tradingsystems Surface/World 2000/XP/Vista For Windows upgrade (1999, 8 1/2"x11", 704 pgs., hardback) pgs., 704 hardback) pgs., 1/2"x11", pgs.) 720 8 720 (1999, 1/2"x11", pgs.) 8 693 1/2"x11", (1998, 8 pgs.) 683 1/2"x11", (1997, 8 pgs.) 686 1/2"x11", (1996, 8 pgs.) 648 1/2"x11", (1995, pgs.) 8 667 1/2"x11", (1994, pgs.) 11", 8 x 606 1/2" (1993, pgs.) 11", 8 x 607 1/2" (1992, pgs.) 11", 8 x 488 1/2" (1991, pgs.) 11", 8 x 482 1/2" (1990, pgs.) 11", 8 x 387 1/2" (1989, pgs.) 11", 8 x 362 1/2" (1988, pgs.) 11", 8 x 269 1/2" (1987, pgs.) 11", 8 x 224 pgs.) 1/2" (1986, 11", 8 188 x 11", 1/2" (1985, x 8 1/2" 8 (1984, (1982-3, upgrade( upgrade version9.24 .com upgrade .0$2.10 $ 6.50 .0$0.65 $ 6.30 1st lb. lb. or part lb.or lb. 1st 25 1.25 12.50 (from S&ConCDv7.22) (from S&ConCD6Xor5X) (from S&ConCDv8.23) all otherver.,w/returnof1.12or2.15) Each add. (Volumes 1-24) (Volumes S TOCKS Shipping &handlingforBooks

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, TheTraders’Magazine book…save PRICE EACH TOTAL PRICE TOTAL PRICE EACH $162.38 SUBTOTAL Traders.com Advantage… Traders.com TOTAL S&C on DVD on S&C * Alsoadd ª … . TE07A1 ✃ ✃ Copyrights 2007 © Technical Analysis, Inc. All rights reserved. TELECHART 2007 one. Infact,T from thelowertrendlinetoupper over thelastfewyearscarriedrates extends backto1981.Theadvance with alargefallingpricechannelthat The bigtrendisclearlydownforrates this analysiscanbeappliedtobonds. site ofinterestrates,andthereverse sis, rememberthatbondsmoveoppo- (Figure 1).Beforegettingintotheanaly- large double top takes shape. takes top double large resistance comes into play and a and play into comes resistance stalled over the last seven days, seven last the over stalled major as change to about be may sharp decline, the Dow transports Dow the decline, sharp f but failedtoholdaboveandcomplete trendline twiceoverthelast12months CHANNELLINES November/December 2007 After breaking support with the with support breaking After by ArthurHill Break Near Support T TRIANGLES T rising been have rates Long-term by ArthurHill Resistance Run Into Long-Term Rates came downjust asfastwithasharpdecline attheendofmonth. FIGURE 1:DJTA,DAILY. or four and a half years, but that but years, half a and four or ransports Stall ransports Tradable: ($T 10-year Treasurynoteyield he long-termchartshowsthe NX $TNX ) overthelast30years NX

pierced theupper The Dowtransportssurgedto anewhighinmid-July,but the chart).T broken supportaround5.25%(52.5on trendline, wealsohaveresistancefrom downtrend. represents resistanceandabig a breakout.Thisupperchannelline pattern is forming. is pattern cline brokesupportfromtheMay- decline atendofthemonth.Thede- came downjustasfastwithasharp O continuation a like looks it and Double-top supportisat4.4%(44)and patterns thatrelatetothebigpicture. last 18months.Yes,thesearebig is alsoadoubletopbrewingoverthe lower. uptrend andcallforacontinuation low (redarrow)wouldreversethis and movebelowtheDecember2006 big testisathand.Atrendlinebreak T-note yieldtotrendlinesupport,anda the lastfewweekscarried10-year below 5.5%twice.Thedeclineover of thepriordeclineandmetresistance (Figure 2).Theadvanceretraced62% ing overthelastfourandahalfyears years), wecanseearisingwedgeevolv- needed toreasserttheuptrend. (52.5-55) andabreakabove5.50%is is stiffresistancearound5.25-5.50% and June2007).Takentogether,there three times(March2002,July2006, note yieldhitresistanceinthisarea After thebreakdown,10-yearT- September 2003andDecember1995. In additiontotheupperchannel In additiontotherisingwedge,there Turning toashortertimeframe(eight Tradable: a newhighinmid-Julybut the Dowtransportssurgedto n thedailychart(Figure1), NX $DJT

hit supportherein of thepatternissubtractedfrom would betoaround3.5%.Thelength the pattern.Thedownsideprojection a breakbelowthislevelwouldconfirm over thelastfourandahalfyears. FIGURE 2:10-YEARTREASURYNOTEYIELD,1999–2007. for rateswithalargefallingpricechannelthatextendsbackto1981. FIGURE 1:10-YEARTREASURYNOTEYIELD,LONG-TERM. or flatmovingaveragewouldindicate moving averageturneddown.Arising lower lowinAugustandthe50-day ready beendone.Theaverageforgeda support, thetechnicaldamagehasal- 200-day movingaverage. also supportaround4950fromthe around thissupportbreak.Thereis June lowsandtheaveragestalled Despite theabilitytofirmaround For moreinformation, visittheS&Cadindexat Disposable… Your Charting Software Shouldn’t Be Some Technology is 1-888-221-0801 aspenres.com break foratarget. 4870 andresistanceat5050.This the lastsevendayswithsupportat The averageformedatriangleover dation forthenextsignal(Figure2). we canfocusonthecurrentconsoli- further downside. downtrend hasstartedandthisfavors moving averagesuggeststhata a currentuptrend.However,falling Turning tothe60-minutechart, Here’s arisingwedgeevolving See www.Traders.comformore. This articlewasfirstpublishedon8/23/2007. Traders.com/reader/ The bigtrendisclearlydown Traders

■ .com ¥ page35

METASTOCK Copyrights 2007 © Technical Analysis, Inc. All rights reserved. PROPHET FINANCIAL; QUOTE.COM into negativeterritoryonTuesday. lower highthisweekandmovedback turning lower.Theindicatorformeda the 60-minutechartandmomentumis in the falling DJUA. falling the in half of July helped create a bottom a create helped July of half page 36 T P by DavidPenn Utilities Index The Dow Jones Divergences And REVERSAL convergence/divergence (M be supportfromtheMarchlows. decline. Thedownsidetargetwould a continuationoftheJuly-August break trianglesupportandarguefor alive. Amovebelow4870would angle resistanceandkeepthebulls move above5050wouldbreaktri- angle breakforthenextsignal.A tion patterns.Iamlookingforatri- patterns andpennantsarecontinua- the dailychart.Trianglesareneutral pattern wouldlooklikeapennanton reverses. morning starpatternthatappears atpreciselythemomentwhenmarket of Julyhelpedtradersanticipate thisbottomintheutilitiesaverage.Notealso FIGURE 1:DOWJONESUTILITIES INDEX,HOURLY. ositive divergences in the second the in divergences ositive I amalsoshowingmovingaverage Tradable: of 2007near535.Fromthat age (D he DowJonesUtilitiesAver- ¥Traders JUA DJUA,$UTIL ) toppedinthespring .com ACD ) on moving averageconvergence/diver- was telegraphedfairlyclearlybythe bottom thatmadetherallypossible 50% ofthelateJulydecline.The writing hasretracedjustshortof nearly verticaladvancethatasofthis mode eversince,movinghigherina ure 1). fashion inthesecondhalfofJuly(Fig- took outtheJunelowsinferocious take outtheMayhighand,instead, new lowforthedeclineasitfailedto back intocorrectionmode,creatinga high inmid-May,theD port breakat4870.■ down againandthisalsofavorsasup- Short-term momentumisbreaking 520 bymid-July. before bouncingtoahighjustnorthof about 485bythesecondhalfofJune The utilitieshavebeeninrally Since then,theD Divergences earlyinthesecond half See www.Traders.comformore. This articlewasfirstpublishedon8/16/2007. JUA

has slipped JUA

fell to gence histogram(M ond higherlowintheM which coincidedperfectlywiththesec- star candlestickpatternonJuly30, back up.Thatmomentwasamorning gave bullsanopeningtopushprices the downsideranoutforbearsand the keymomentwhenmomentumto lower. Thehourlychartsalsoreveal in ordertospotit.SeeFigure2. had tobelookingatthehourlycharts near term,momentum totheupsideisclearly growingweaker. in theMACDhistogram.While theDJUAislikelytocontinuemovinghigherin a 50%retracementofitslateJuly correction,negativedivergencesbegintoappear FIGURE 2:DOWJONESUTILITIES INDEX,HOURLY. the highofpattern. immediately withanhourlycloseabove tion ofthemorningstarpatterncame clear positivedivergence.Confirma- while theD July 26anddidsoagainon30 of higherlowsinthehourlychartson support at4870andresistance5050. FIGURE 2:DJTA,HOURLY. The M ACD JUA H beganmakingaseries

was continuingtomove ACD The DJTAformedatriangleoverthelastsevendayswith ACD H). Butyou H anda this bounceareincreasing. and thatthechancesofacorrectionto momentum totheupsideiswaning M advancing markets,theshrinking While thisisoftenthecaseinnewly peaks intheM Note howastheD are negativeorbearishdivergences. gences, incontrasttotheearlierones, gences atthehourlylevel.Thesediver- index hasbeguncreatingnewdiver- the highsofmid-July.Indoingso, traced nearly50%ofitsdeclinefrom ACD Since reversing,theD As theutilitiesaverageclimbs toward H isawarningtotradersthat See www.Traders.comformore. This articlewasfirstpublishedon8/6/2007. November/December 2007 ACD JUA H growsmaller.

advances, the JUA ■

has re-

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. nal thefirstupturninindicator. %K. Abreakabove%Dwouldsig- stochastic oscillator,whichiscalled tial movingaverage(E represents athree-periodexponen- The signallineiscalled%Dandit below itssignalline(magentaline). and bearishaslongitremains should beconsideredbothoversold first halfofMarch.Theindicator late Februaryandbottomedinthe index alsosufferedasharpdeclinein for thefirsttimesinceMarch.The oscillator, whichmovedbelow20 sessment isbasedonthestochastic time sinceMarch.Myoversoldas- has becomeoversoldforthefirst around 6%inthelastsixdaysand is now oversold and at support. at and oversold now is guard for a bounce as the index the as bounce a for guard tract highs. tract w the 10-year Treasury nears con- nears Treasury 10-year the last lower market the led Index STOCHASTICOSCILLATOR November/December 2007 L as develop divergences Negative by DavidPenn Resistance Drive Into December Bonds SUPPORT&RESISTANCE O Materials Basic Jones Dow The by ArthurHill Support Materials Hits Dow JonesBasic eek, but traders should be on be should traders but eek, to earlyMay. zone thatextendsback trading nearasupport oversold, theindexis In additiontobeing Tradable: Tradable: “dark cloudcover” —that reversal patterns—including ate inJuly,Iwroteaboutthe als Index($D the DowJonesBasicMateri- n thedailychart(Figure1),

TYZ7 $DJUSBM JUSBM MA ) declined ) ofthe and mid-June. was turnedbackatthislevelinearly tance fromtheJunehighs.Theindex target areaalsocorrespondswithresis- target zone.Onthedailychart,this now turnsintoresistanceandanupside at 285lastweek(redcircle).Thisarea minute chart,theindexbrokesupport broken supportaround285.Onthe60- short-term momentumbullish. a movebackabove50wouldturn tor hitresistanceat45lastweekand the stochasticoscillator.Theindica- this withamomentumbreakoutin the pricechart.Iwouldalsoconfirm high, andreversethedowntrendon break thetrendline,forgeahigher the price.Amoveabove277would in boththestochasticoscillatorand territory. Iamlookingforabreakout tween zeroand20,whichisoversold chastic oscillatorisfluctuatingbe- from July24.Inaddition,thesto- below thetrendlineextendingdown ing loweronthischartandremains (Figure 2).Theindexisclearlytrend- of strengthandashort-termbreakout 60-minute chartforsomeevidence sible atsupport,Iamturningtothe prepare foranoversoldbounce. zone isholdingandtradersshould term uptrend.Fornow,thesupport a lowerlowandreversethemedium- below thissupportzonewouldforge testing thissupportlevel.Abreak months andtheindexisonceagain at leastfourtimesinthelastthree D that extendsbacktoearlyMay. index istradingnearasupportzone dark cloudcover patternreflectsis opportunity forthebears. Allthe is moreawarningtobullsthan itisan “dark cloudcover.” stick line.Thatphenomenon iscalled the realbodyofpreviouscandle- fact thatitpenetrates50%ormoreof open upbutclosedown,sofardownin rising candlesticklines,amarketwill upside (Figure1).Afteraseriesof and signalswaningmomentumtothe pattern thatdevelopsduringuptrends cloud cover”isaJapanesecandlestick Bond Rally,”July30,2007).“Dark tures contract(“DarkCloudCoverCaps September 10-yearTreasurybondfu- were appearinginthechartsof JUSBM The initialupsidetargetwouldbe While anoversoldbounceispos- In additiontobeingoversold,the At leastinitially,darkcloud cover

bounced offsupportat270 See www.Traders.comformore. This articlewasfirstpublishedon7/30/2007. ■ and hasbecomeoversoldforthefirsttimesinceMarch. FIGURE 1:DJBASICMATERIALS,DAILY. term breakoutcanbeseen. FIGURE 2:DJBASICMATERIALS,60-MINUTE. V Software You’ve Outgrown! For moreinformation, visittheS&Cadindexat aluable toSpendReplacing Y our Trading TimeisToo 1-888-221-0801 aspenres.com The indexdeclinedaround6%thelastsixdays Some evidenceofstrengthandashort- Traders.com/reader/ Traders .com ¥ page37

TELECHART 2007 Copyrights 2007 © Technical Analysis, Inc. All rights reserved. index (A a bullishrallyahead. R bought forlongerperiods.Thus,the level. Thisindicatorcanremainover- brought SeptemberT-notefutures move fromthattestofsupport short intoapivotlowatsupport.The higher andturningadarkcloudcover with buyerssteppingintobidprices can continue as theindicatoriscon- a developeduptrend.The uptrend (E day exponentialmovingaverage has alreadymovedaheadofthe200- basis. Thehourlychart(Figure1) has turnedpositiveonashort-term kets oncreditissues.Now,theindex before theplummetinfinancialmar- its old highs. old its surged above resistance, targeting resistance, above surged page 38 T Index Technology Computer The by ChaitaliMohile Tec Computer Breakout In BREAKOUTS exponential movingaverage(E to themarket’stestof50-day September futuresreactedstrongly firmed asshortableonAugust8. cover ofAugust6thatwascon- tember T-notefutures,thedarkcloud dark cloudcovershorttradeinSep- have kepttradersoutoftheclearest, ing totheshortside. reversal patternandsuitablefortrad- cloud coverpatternconfirmedasa ered” cantradersconsiderthedark and thesessionthatisbeing“cov- both thedarkcloudcoversession verses byclosingbelowthelowof Only whenthemarketactuallyre- simply waningbullishmomentum. market. $X with thepullbackrallyinentire short term.Theindexfollowsalong ing sometradingopportunitiesinthe slow recoveryhasbeenseen,offer- four years.Sincemid-2006,some dex (R indicators. Therelativestrengthin- SI The averagedirectionalmovement This rule,unfortunately,wouldnot MA Tradable:

(14) atthepresentlevelindicates ) withthebullishsupportof SI hnology Index dex ($X performing thelastthreeto he ComputerTechnologyIn- ¥Traders ) (14)isoverboughtatthe75 DX ) (14)isat29,indicating CI $XCI

made ahighof925 CI .com ) hasbeenunder- MA ), a stop-lossof200-dayE as well.Inaddition,the50-dayE resistance abovethe200-day E a targetof895,whichisthefirst intraday intraday basis,traderscango longwith the confirmedindication.Thus onan this crossoverandtradeaccordingto happen. Hence,traderscanjustwatch crossover butthisisyetto moving averagesmayhaveabullish vergence (M The movingaverageconvergence/di- sidered overheatedonlyabove40. divergences areforemostawarningto appears tochallenge.Soagain,these following thetrendthatdivergence first asawarningtothosewhowere reversal patterns,divergencesserve histogram andthestochastic. negative divergencesinboththeM terest, themarkethasbeguntodevelop reflecting anabundanceofbuyingin- remains overbought(basisDecember), while themarketforT-notefutures panies testsofnewhighs.Inparticular, ing thesortoffatiguethatoftenaccom- standably, themarkethasstartedshow- highs inT-notefuturesand,under- level coincideswiththeMarch2007 level at109.Thispotentialresistance appears tobeasignificantresistance brought thatmarketrightuptowhat in lessthan10days. from justabove107tomorethan109 200-day E ready foranupsidejourneyandthe In Figure2,the bullishrallybeganat As wasthecasewithcandlestick The advanceinbonds,however,has resistance willbethefirstintradaytargetonthisbreakout. resistance ofaprevioushighatthe895level.This FIGURE 1:$XCI,HOURLY.Thebreakoutherehasfirst MA ACD

is tippeddownward.The ) (12,26,9)ispositive MA

support. MA MA

with ACD

is closing abovethe50-dayE upside rallyhadgainedabout$42by term. priced lowerinthenear bets thatbondswillbe nity tomakereasonable again haveanopportu- T-note bearsmayonce below 107.75orso,then close lower,particularly market infactreverseand ket. However,shouldthe their exposuretothemar- T-note bullstoreduce bullish strengthintherally. TheA buying opportunityand indicates ing toFigure2. be thefinaltargetonthislevelaccord- and thenthehighestpivotof925would rally wouldhaveafirsttargetof$900 support forthisupwardmove.The this movingaveragewillbestrong E shadows movedbelowthe200-day the 840level.Thecandleswithlong Penn, David[2007]. S uptrend with thepossibilityofan (14) at24indicatesadeveloping READING MA UGGESTED The R tage, July30. Tr Caps BondRally,” “Dark CloudCover

aders.com Advan- support butclosedat840.The ■ SI

(14) at55showsfresh is onitswaytoprevioushighresistances. support tothebreakoutondailychart.The FIGURE 2:$XCI,DAILY. futures testresistanceattheMarchhighs. momentum totheupsidejustasDecemberT-note gram andthestochasticserveasawarningofwaning DAILY. FIGURE 1:10-YEARTREASURYNOTE,DECEMBERFUTURES, MA . Now Negative divergencesinboththeMACDhisto- DX sure isdiminishing.TheM coming sessionwhilesellers’pres- increase inbuyingpressurethe day E trade withabreakoutabove the50- zero line. ish indicationbymovingaboveits histogram isgivinganadvancebull- sary) inthenegativearea,but crossover (withconfirmationneces- (12,26,9) isstrivingforabullish highs. The 50-dayEMAhasofferedstrong Hence, traderscangetagoodlong MA

■ See www.Traders.com formore. This articlewasfirstpublishedon8/28/2007. See www.Traders.comformore. This articlewasfirstpublishedon8/28/2007.

with atargetofprevious November/December 2007 ACD

STOCKCHARTS.COM PROPHET FINANCIAL Copyrights 2007 © Technical Analysis, Inc. All rights reserved. bottom. divergences and reversal patterns hint at a at hint patterns reversal and divergences November/December 2007 M “ by DavidPenn Lines Hammer Candlestick Divergences And USD/CHF: Positive REVERSAL down inthedollarisimminent. caution forthosewhobelievetheultimatebreak- level intheUSDollarIndexshouldprovidesome that thesupportdollarhasfoundnear80 Tim Woodof lapse anyday,otherno-less-brightmindssuchas Economic Collapse Crash Proof:HowToProfitFromTheComing Schiff ofEuroPacificCapital(andauthor some ofthesmartestpeoplearoundlikePeter bulls willbeproven“latebutcorrect.”While secular topinthestockmarket. those who,asearly1998,beganlookingfora I’m not dead yet!” cried the greenback, as greenback, the cried yet!” dead not I’m SIGNIFICANT CANDLESTICKPATTERNS Hanging Hammer Most recently,theUSdollar/Swissfranccur- Perhaps likethoseseersofthelate1990s,dollar Tradable: man dollar haveresembledlittlemorethan been lookingforabottomintheUS arket technicianslikemewhohave Shooting Inverted Hammer USDCHF Star Cycles, NewsandViews the day’stradingactivities. trading rangeandperhaps servesasasummationof bring itup?Becauseconfirms thecontinuationof body ratherthanthelength ofeithershadow.Whyeven a consolidationperiod.Thesignificanceisinthesmall This isconsideredaneutralpatternthatoccursduring SPINNING TOP ) believethedollarcouldcol- appearing nearthetopofanupwardtrend. a reversal.Theyarethesameformation,only mer formationsoccurinuptrendsandforecast These bearishcounterpartsofthebullishham- BEARISH ered moresignificant. can beeithercolor,butwhitebodiesareconsid- long lowershadowandasmallbody.Thebody A bottomreversalpatterncharacterizedbya BULLISH HAMMER&INVERTED HANGINGMAN&SHOOTINGSTAR

suggest C URENIS C URENIS C URENIS point oftheM the stochastic(Figure1).Thelow and shadowofthesessionwhenthat through thepatternofitsrealbody on thepartofbears,butalsoreveals not onlyunderscoresthatweakness momentum, thehammercandlestick vergence reflectswaningdownside early August.Whilethepositivedi- pearance ofahammercandlestickin been helpedtremendouslybytheap- lower lows. the currencypairwasstillmaking also inthefirsthalfofmonthwhen stochastic arrivedalittlelater,but of downside.Thelowpointinthe had atleastanother200points’worth the dailychartsofU — developmentshaveappearedin bullish —oratleast“counterbearish” Wood. Isaythisbecauseanumberof rency pairseemstohavesidedwith pattern. ThefactthattheM reversal patternisacloseabovethehighof required toconfirmthehammercandlestickasa weakness becamecleartoallobservers.Allthatis July, atatimewhentheU C seen. ButitdoesappearthattheU warn greenbackbearsremainstobe embolden greenbackbullsormerely Whether thesedevelopments gence histogram(M moving averageconvergence/diver- vergence, nowinevidenceboththe — again. —Sharon Yamanaka —Sharon HF These positivedivergenceshave First upisthegrowingpositivedi-

pair hasbecomeworthwatching ACD H cameinearly ACD H) aswell SD bull case. further supportivetothe a bullishPpPpatternis ACD /C SD HF /C H istickingupin

still HF SD For moreinformation, visittheS&Cadindexat ■ / . V V greenback/swissy pair. candlestick linetosuggestanopportunitytheupsidein gences intheMACDHandstochasticcombinewithahammer FIGURE 1:USDOLLAR/SWISSFRANC(USD/CHF),DAILY. Those Are OurTerms! alue intheShortTerm. alue intheLongTerm. 1-888-221-0801 aspenres.com See www.Traders.comformore. This articlewasfirstpublishedon8/8/2007. Traders.com/reader/ Traders .com Positive diver- ¥ page39

eSIGNAL Copyrights 2007 © Technical Analysis, Inc. All rights reserved. the session. finishes nearthehighsof nearthelowsand at orvery occurs whenamarketopens The bullishbeltholdpattern bullish session.Unfortunatelyforme, which isthenfollowedbyaclearly leading toagapdownneutralsession, morning star,withabearishsession line. Themarketneedstofallintoa pattern needstobeadowncandlestick be amorningstar. wanted desperatelyforthepatternto g end to the rally in the September the in rally the to end strength. term dollar makingabearmarketrally think thereisasmuchachanceofthe yours truly.And,iftruthbetold,Istill in the second half of June put an put June of half second the in near- suggest greenback the in CANDLESTICKCHARTING page 40 Y pattern reversal bearish classic A by DavidPenn Cloud Cover Dollar Dark W patterns hold belt bullish of pair A by DavidPenn Dollar Bolster The Belt Holds CANDLESTICKCHARTING reenback. But thefirstlegofamorningstar Tradable: Tradable: ¥Traders ou willfindfewtechnicians for abottominthedollarthan who havebeenasdesperate September USdollar,I pattern developinginthe hen Ifirstsawthereversal DXU7 DXU7 .com niques Japanese CandlestickChartingTech- the analysisofSteveNison,author candlestick patternsthathaveescaped cantly bullish—development. significant —andpotentiallysignifi- the properdescriptorofthisobviously tern, Iwasforcedtolookelsewherefor resembled amorningstarreversalpat- tern, theothertwo-thirds,verymuch during thatsession. down butfinishedsignificantlyhigher than bearish,asthemarketgapped be morningstarwasbullish,rather the initialcandlesticklineofwould- opens higher but thencloseslower, ure 1).When,inarally, a market chartists call“darkcloudcover” (Fig- created whatJapanesecandlestick were almosttakenout. where thelowsofpreviousday ing itlowerbytheclosetopoint ately overwhelmedthemarket,driv- market higher.Butsellersimmedi- tially thatbuyerswerereadytotakethe the resistancelevel,suggestingini- a short-termbounceinlateMarch. north of82.5,resistanceleftoverfrom a sourceofpotentialresistancejust January near84.5. decline fromtheyear-to-datehighsin dollar retracedjustover50%ofits the highinmid-June.Indoingso, tember) fromthelowinlateAprilto the marketfrom81to82.5(basisSep- the secondhalfofJune. lot, tobesure—foldingtimecamein ‘em, andfordollarbulls—abattered there isofthedollarcollapsing. (especially ifinterestratesrise)as candlestick patterns,contextiscritical. higher overthecourseofsession. impressive rangeasbuyersbidprices patterns arelonglinesandreflectan session. Inaddition,bullishbelthold lows andfinishesnearthehighsof when amarketopensatorverynearthe (See Figure1.) less-often-discussed And twoofthosepatternswerethe ally consistedofanumberpatterns. pattern intheSeptemberdollaractu- book, Irealizedthatthebottoming of consultationwithNison’sfirst closer observation,andafewminutes Fortunately, therearen’ttoomany So eventhoughtherestofpat- This reactiononthepartof sellers The marketopenedupwellabove In mid-June,thedollarwasnearing The springrallyinthedollarbrought But youhavetoknowwhenfold As isthecasewithallJapanese The bullishbeltholdpatternoccurs and Beyond Candlesticks bullish belthold . On . stick line. the highpointofthatsinglecandle- hold, thatwouldmeanacloseabove the pattern.Incaseofabullishbelt above thehighofhighestpointin confirmation for thoselookingto The fourthweekofJunerepresented That wasthewarningto bulls. dollar asofthethirdweek ofJune. cover developedintheSeptember “overshadowed.” Thedark cloud stick andthecandlestickthatisbeing mean boththe“darkcloud”candle- to reversal. increasingly vulnerable and thatthemarketis side hasbeenexhausted, the momentumtoup- cover.” Itsuggeststhat called “darkcloud or more,thatmarketis the previousdayby50% penetrating therangeof — Imeanaclosethatis firming closeinthiscase moreover, abullishcon- a confirmingclose—and, is aconfirmingclose.By positions assoonthere days laterstill. days laterandathird,two ish beltholdappearstwo ably moreconvincingbull- The second,alarger,argu- tial legofthemorningstar. wished wouldbetheini- first oneiswhatIhad September greenback.The a maturedowntrendinthe holds developattheendof overall uptrend. short-term correctioninan mature downtrendora thing toreverse,suchasa tern onlywhenithassome- appears asareversalpat- A bullishbeltholdpattern to reversal. market safeforselling. versal confirmedandthe cover pattern,isthere- the lowofdarkcloud reverses, closingbelow when themarketinfact mentum has cover isthatupsidemo- antee withdarkcloud By “darkcloudcoverpattern,”I The keyis Trading rulesallowfor Here, thebullishbelt See www.Traders.comformore. This articlewasfirstpublishedon8/2/2007.

■

The onlyguar- stalled. Only vulnerable of Juneintoatruereversalpattern. turn thisdarkcloudcoverpatterninthesecondhalf WEEKLY. FIGURE 1:USDOLLARINDEX,SEPTEMBERFUTURES, signaling higherpricesinthenearterm. half ofJune,stemmingthedollar’sdescentand Three bullishbeltholdpatternsappearinthesecond FIGURE 1:USDOLLARINDEX,SEPTEMBERFUTURES,DAILY. The follow-throughtothedownsidehelps ing basis. down tonewlowsonaweekly clos- bounce frommid-Aprilwasover. sell thedollarthatseven-week Two weekslater,thedollarbroke See www.Traders.com formore. This articlewasfirstpublishedon7/13/2007. ■ November/December 2007

eSIGNAL Copyrights 2007 © Technical Analysis, Inc. All rights reserved. convergence/divergence histogram(M index (R other momentumindicatorsliketherelativestrength begin withT that signalgrowingorwaningmomentum. Installment 2 of two. of 2 Installment When amarketmakeslowerlowandtheT divergence, anegativehasoccurred. higher highandtheT lows aremade.Specifically,whenamarketmakes to trackpriceactionwhenhigherhighsandlower f November/December 2007 momentum as crude oilsoaredhigherinmidsummer. early JulytoAugustsignaled waningupside month-to-month negativedivergence intheTRIXfrom FIGURE 1:CRUDEOIL,SEPTEMBER FUTURES,DAILY. which Idescribedinanarticlefor occurred. makes ahigherlow,thenpositivedivergencehas derivative oftheT involves usingasecondline,signallinethatis positive andnegativedivergences,whilethesecond Tr by DavidPenn THEOPTIMIZEDTRADER vergences intheT “hooks” whentheT and bearishcrossoversinvolvingthezeroline, tum traderscanusetheT market momentum. be mosteffectiveforcatchingshort-termshiftsin able signalsontheintermediatelevel.Hookstendto overs, generallyspeaking,provideparticularlyvalu- alls with the classic momentum indicator. momentum classic the with alls My My ading divergences, golden crosses, and crosses, golden divergences, ading Divergences areafairlycommontopic,solet’s There areotherdivergencepatterns,manyof There aretwootherimportantwaysthatmomen- SI ), stochastics,orthemovingaverage RIX

divergences. Aswithdivergencesin RIX RIX TRIX Two Ways RIX RIX

occur whentheindicatorfails , inordertospotkeypatterns last discussionontheT popular applications:bullish oscillator coveredtwoofits triple-smoothed exponential

curled upordown.Cross- makes alowerhigh,then RIX . Thefirstinvolves ACD Working- H), di- RIX Part II RIX

or A Money.com gence intheT higher highs.Thisisthepatternofanegativediver- highs atthesametimethatcrudeoilwascreating gences,” July, theT consolidation thatprecededthebreakout. its priceprojectionbasedonthewidthof September crudedidanexcellentjobofreaching widest point.Breakingoutatapproximately$70, to lateJune,measuredapproximately$7atits the consolidationpatterninspring,fromApril the beginningofmonthtoend.Asanaside, broke outinearlyJuly,rallying$8perbarrelfrom trading formuchofthespring,crudeoilfutures the summerof2007inFigure1.Aftersideways mon, positiveandnegativedivergencescenarios. But In anyevent,asSeptembercruderalliedhigherin Note thechartofSeptembercrudeoilfuturesin for now,let’sstickwiththebasic,mostcom- Working-Money.com, okt h mr Choice! Smart the to Look RIX Looking forChartingSoftware

last year(“Dial%91D’For

RIX indicator begantolag,creatinglower that DeliverstheBestValue [email protected] . T For moreinformation, visittheS&Cadindexat 1-888-221-0801 oday andTomorrow? reTrial Offer! Free

March 8,2006). Diver- cannot besold.Itsimplymeansthatanegative will treatitassuch. same thingasasellsignal,thoughmanytraders that upsidemomentumiswaning.Thatnotthe divergences servemosteffectivelyaswarnings before theyreachtheirultimatepeak.Negative kets oftenmakeanumberofnegativedivergences for bullsthantheyarebears.Advancingmar- divergences atthetopsofmarketsaremorenews That doesn’tmeanthatnegativedivergences I’ve cometobelievethatthesesortofnegative Traders.com/reader/ Traders .com ¥ page41

Copyrights 2007 © Technical Analysis, Inc. All rights reserved. page 42 is aclassicpositive,orbullish,divergence.Note late June,theT ever, asAugustgoldwasmakinglowerlowsin lower lowsgoingintoandthroughJune.How- divergence (Figure2). correction orevenoutrightreversal. tive divergencedoesturnouttomarkalarger reducing riskexposureintheeventthatnega- negative divergencetoconsidertakingprofitsor someone whoislongamarketthatdevelops particular market.Itis,however,agoodreasonfor best reasontotakeanewpositionagainstthat divergence inandofitselfisnotnecessarilythe Here wehaveamarketinbearishmode,with Let’s lookatanexampleofapositiveT 14 daydemoisbasedondelayed data forselectproducts from selectmarkets andexchanges. ¥Traders 7 RIX .com

was makinghigherlows.This For moreinformation, visittheS&Cadindexat RIX also howtheT First, thelowpointofapositivedivergenceor helpful rulestomakethemostoutofsuchtrades. gences asreversals,however,therearesome by thedivergence.Forthosewhotradediver- direction ofthetrendthathasjustbeenchallenged initially asawarningtothosewithpositionsinthe than 684. a lateJunelownear644toJulyhighofmore August goldisonthemovehigher,rallyingfrom gence pullbackinthefirstfewdaysofJuly, prices ingold.Afterabrief,post-positivediver- sign thatfurthersupportsthecaseforhigher shortly afterthepositivedivergence,abullish I’ll sayagainthatItendtolookatdivergences Traders.com/reader/ RIX

crosses abovethezeroline tems shouldconsider. that traderswhousecrossover-based tradingsys- patterns Iwilldiscussisaparticularly winningone price moves.Thecombination ofsignallinesandthe tors andsignallinesthatoften resultinsignificant traders anticipatethesortofcrossesbetweenindica- signal linestospotcertainpatternsthatcanhelp traders improveduponthenotionofindicatorsand Japanese candlestickcharting,sohave hanced ourabilitytoreadpricechartswiththeuseof ticular implementationoftheT T with movingaverage-basedindicatorssuchasthe which canhelpovercomethelagoftenassociated provide anadditionalrateofchangeindication, existed forAugustgold. tum waswaningandthatanopportunitytotheupside when Augustgolddidwasasignthatbearishmomen- the TRIXtomakealowerlowinsecondhalfofJune FIGURE 2:GOLD,AUGUSTFUTURES,DAILY. convergence/divergence (M such asthestochasticandmovingaverage as signallineswithothermomentumindicators T The lasttechniqueIwanttoshowinvolvingthe C tage ofthis. beginning, canhelpatradertakemaximumadvan- charts). Awiderthanusualstop,particularlyinthe opments (thatis,amonthormoreonthedaily successful, theyareoftenintermediate-termdevel- over thecourseofJuly.Again,whendivergencesare divergence, whichwasthelargermovethatunfolded trader fromexploitingthetruevalueofpositive A stopthatwastootightwouldhavepreventeda to northof660,butthenpulledbackaslow648. bounced immediatelyafterthepositivedivergence beginning. NotehowthegoldmarketinFigure2 kets agreatdealofwiggleroom—atleastinthe to makesurethatthereisacleartap-outpoint. fade thesetrendsbybettingonthedivergencesis toms. Onewaytoavoidgettingkilledtrying vergences enroutetotheirultimatetopsorbot- tioned, trendingmarketswillcreatemultipledi- Amityville Horror high pointofanegativedivergenceneedstobethe The ideaofasignallinewiththeT Systems andauthorof tesy ofTimKnight,founderProphetFinancial RIX RIX In thesamewaythatJapanesetradershaveen- With thecrossing oftheT As such,tradingdivergencesmeansgivingmar- ROSSES . includes theuseofasignalline.Thispar-

AND

F “Get Out!”point.AsImen- ALLS Chart YourWayToProfits. November/December 2007 RIX ACD

(or anyindicator) RIX ). Signallines RIX

comes cour- The failureof

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. tions ongoldencrosseswiththeT As such,whiletradersareencouragedtotakeposi- toward shorter-term,momentum-orientedtrading. to intermediate-termtrading,isespeciallygeared after atleastoneupwardsession. T direction. through thesignallineheadingupwardinabullish November/December 2007 at aminimum,reducingexposure. displayed bythefallissufficientforprofit-takingor, cross belowthesignalline.Theshiftinmomentum session. ward inabearishdirection. called of whichtriggertraderaction.Thesepatternsare and itssignalline,therearefourmainpatterns,two signal followingaTRIXpositivedivergence. highlighted ovalinthecentershowsagoldencrossbuy highlighted ovalreflectsagoldencrossbuysignal.The TRIX (inblue)rolledorhookeddownward.Therightmost chart revealsell/shortsignalsbasedonfallswherethe MINUTE. FIGURE 3:S&P500INDEX,SEPTEMBERFUTURES,15- the positionlongenoughforT position couldlosesubstantialvalueifatraderkept recommended instead.Tradedintheshortterm,a Rather, exitingonthefallafteragoldencrossis to waitaroundforadeadcrossinorderexit. above thesignalline,tradersarealsoencouraged T falls. RIX RIX Trading withthesepatterns,althoughapplicable One ofthenicethingsaboutProphetFinancial Golden crosses PRIVATE TUTORING •FREETRIAL Intermediate Trading andLong Term Trading. Inner-Daytrading •Speed-Trading • be taughthowtoMakeMoney: Daytrading• In thisExclusive Trading Courseyou’ll Precise &canbe Traded Electronically All Trading Methods Taught arePowerful, Gold •T-Notes •GrainsETC E-MINI S&Ps•StocksCurrencies T Chicago Board ofTrade Membercan movesthroughthesignallineheadingdown- each You toMakeMoneyTrading: hooks upwardafteratleastonedownward golden crosses,deadbounces, WWW.JONATHONSTONE.COM The twohighlightedovalsontheleftsideof Falls Dead crosses, Mr. Stone •847-295-0056

occur whentheT

by contrast,occurwhenthe Bounces RIX

hooks downward RIX RIX occur whenthe breakingout

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and not For moreinformation, visittheS&Cadindexat signals. Inbothinstances,aT technical tradingmethod. crosses andsellingfallscanbepartofawinning per se,saveforusingittoshowhowbuyinggolden success —Iwon’tspendalotoftimeonthesystem money managementhasbeencriticaltothesystem’s money management—andbecauseIsuspectthat its results.Becausethesysteminvolvessomestrict and regularlysinceJune.Ihavebeenimpressedwith daytrading systemonandoffforthepastyearorso, personal preference. develop whentheT buying opportunity.Rememberthatgoldencrosses highlighted ovalthatrepresentsagoldencrossand nities. Onthefarrightsideofchart,weseea E cause themarketwastradingunder50-period however temporarily,turnedorhookeddown.Be- System’s implementationoftheT Note thatjustbeforetheT ing solelyonT convergence/divergence histograminsteadofrely- divergence confirmationfromthemovingaverage Generally, whenIamusingthissetup,require unless thereisanegativeorpositivedivergence. 50-period E occurred —however,themarketistradingbelow the greenarrowthatindicatesagoldencrosshas the center.Herewehaveabuysignal—asshownby signal line. situation whetherornottheT learn howtospotthesepatternsinanycrossover having thearrowsinplacenotonlyhelpstraders isn’t necessary;eyeballingthechartissufficient.But golden crossesandfalls(respectively)appear.This is thatitdrawsgreenandredarrowstoindicatewhere the 50-periodE bit ofafilterontheT period exponentialmovingaverage(E number ofthingstolookat.Ihaveincludeda50- Poor’s 500futurescontractinFigure3givesusa with asingleglance. also makesiteasytoseebuyandsellopportunities making alowerlow.ThisisoneofthefewtimesI ing ahigherlowatthesametimethatmarketwas the indicatordevelopedapositivedivergence,mak-

MA On theleftsideofchartwehavetwosell/short I havebeenfollowingthiseminiS&P500 Finally, Iwanttopointoutthehighlightedovalin The chartoftheSeptembereminiStandard& visit • • • -Cutting-Edge Trading Platforms? • • • Does Your CurrentCommodityBrokerOffer: highly competitiverates. traders withcutting-edgetechnologyandbackupsupportat Field FinancialGroup(FFG)hasbuiltitsreputationbyproviding Don’t Trust Your FuturestoJust Any BrokerageFirm! FREE SubscriptiontoMonthly Trader UpdateLetter V Broker-Assisted Trading?

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and with twolines MA ) toputa Penn, David[2007].“T Knight, Tim[2007].ChartYourWayToProfits, _____ [2002].“T _____ [2006].“Dial‘1D’ForDivergences,” gence, notrade. Hutson, Jack[1983].“GoodT R This articlewasoriginallypublishedon8/24/2007. was tradingabovethe50-periodE same wouldbetrueinthecaseofsellingamarketthat signals waningmomentumtothedownside.The opportunity forthenimbletrader. tainly, intheshortterm,areoftenrepletewith may ornotresultinlargermoves,butcer- in spottingshort-termshiftsmomentumthat do asgoodajobanyotherindicatorormethod and thegoldencross/falltechniqueshownhereto the hooksdiscussedinpartIofthistwo-partseries initiate positions,myownexperiencehasfound by longer-termtradersandeventrendto this method,asthosewiththehooks,canbeused camp aswell.Althoughtheentriesprovidedby cross/fall methodologyintheshort-termtrading fits forshort-termtrading.Iwouldputthegolden the 50-periodE would betinfavorofamarketthatwastradingbelow contrast, T to indicatebestovertheintermediateterm.By as zerolinecrossoversanddivergences,seemed I mentionedthatcertainT EADING fits forshort-termtrading. techniques likethehookweregood intermediate term.Bycontrast,TRIX seemed toindicatebestoverthe zero linecrossoversanddivergences, Certain TRIXtechniques,suchas ing-Money.com, March8. John Wiley&Sons. sis of Working-Money.com, August2. Analysis of ume 20:March. www.oexoptions.com R Daily S&P100 Daily STOCKS&COMMODITIES. Index Option eal Mentoring RIX FREE Trial & STOCKS &COMMODITIES,Vol-

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Copyrights 2007 © Technical Analysis, Inc. All rights reserved. Buy andHold Breakout — Elliott WaveTheory Directional MovementIndex(DMI) Exponential MovingAverage Andrews MethodorPitchfork— Bollinger Bands— Average DirectionalMovementIndex(ADX)— Divergence Convergence —Whenfuturespricesandspot Fade kidstuff, andevenworkfor M and corporategraphics,medicalart,advertising, illustrator withaportfoliothatincludesbusiness Lisa Haney(coverart) page 46 reached [email protected]. www.whatsonsale.ca/financial.html andhemaybe Peterborough, Ontario,Canada.Hiswebsiteis equities traderandtechnicalanalystbasedin Gary Grosschadl may [email protected]. powerful andmaycontinueinthatdirection. when broken,areanindicationthatthetrendis tility andcontractindecreasedvolatility, Bollinger Bandswidenduringincreasedvola- ket trend. oped byJ.WellesWilder,DMImeasuresmar- indices failtoshowconfirmingtrends. price spansandtargetsmaybeprojected. waves up.Fibonacciratiosareappliedtothe ferred toasa“correction”oftheprecedingfive eight waves.Thethreewavesdownarere- three wavesdowntoformacompletecycleof lows arhythmorpatternoffivewavesupand 1939, whichholdsthatthestockmarketfol- technique publishedbyRalphNelsonElliottin measure markettrendintensity. Indicator developedbyJ.WellesWilderto prices cometogetheratthefuturesexpiration. = no.ofperiods. moving average*(1-k)),where k=2/(n+1);n (Today’s closingprice*k)+(Yesterday’s formula forcalculatingEMAis:= weight onthemostrecentclosingprice.The the movingaverage,EMAplacesmore opening would beshort. price. Forexample,atrader whofadedanup out ofthetrendchannel. tance andsupportlevelsforthepricechannel. tive phase.Theparallellinesdefinetheresis- through thehighandlowpointsofcorrec- tive phase.Linesparalleltothelinearedrawn bisects alinedrawnthroughthenextcorrec- or highanddrawalinefromthispointthat whereby atechnicianwillpickanextremelow the longtermratherthanquickturnover. — Sellingarisingpriceor buyingafalling

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