Day: June 19, 2018

Addendum To: Charting Possible Courses

I received a call from a colleague who is not of the “technical analysis” set. He, like most in business, have only a very limited understanding when it comes to looking at market charts. i.e., They only understand UP or Down.

As I have said since the beginning of this blog (and partly the reasoning for it) in today’s world of interconnected markets of all types – not understanding them, in at least a very familiar way with how they interact – is no longer an option for today’s business person. It’s now a requisite and has nothing to do with “investing” per se. It’s about understanding what may, or may not, put your business at risk, or help it grow. 401K type enthusiasm is for others.

So with that said, the question they asked was, “Could I show what I meant when it comes to that ‘False positive’ thingy and the ‘no man’s land’ warning in another example?” For they weren’t quite getting it. I said sure, and started to peruse a few ticker symbols, scanning for something quick to use, and I found one. It’s Tesla™.

For brevity’s sake, I’m not going to go into the minutia of differing time frames and patterns. The example itself should show precisely what I mean. To wit:

(Source)

The above, is again, a “Mean Reversion Channel.”

Tesla’s stock has been on an absolute tear off its most recent larger pull back. The news regarding Tesla, one would think, would warrant people to either sell, or at least pause in taking it toward its all-time-highs. Auto pilot crashes, investigations, spontaneous ignition, deaths, and more have done absolutely nothing in regards to stopping its upward progression. At just about every instance where it seemed that the “party may be over” signaled – the stock seemed to just gather even more momentum to head upwards.

Today, as I am writing, this stock has fallen by some 6% since the “markets” opening. That type of drop is nothing to sneeze at, especially if you are someone who bought into it on let’s say, Friday.

As you can see I have annotated the above chart, the time intervals represented by the bars/candles are hourly, the same as I used for the Russell earlier.

Today’s price action looks quite dramatic compared to any recent pull backs, and in previous smaller technical patterns and observations it would warrant possible impending turmoil. However, just like the Russel from my earlier post, the smaller patterns have been negated and what seems to have emerged is a much larger pattern which allows for quite the price moves – yet – doesn’t resolve to warn for more down or up. The “ping-pong” effect in the “No man’s land” area between the upper and lower is in effect. i.e., You just have to wait and see a clear break first ether way before any further action is warranted.

I’ll only end with this: If you are one that bought on Friday?

I would suggest you watch very carefully.

© 2018 Mark St.Cyr

Charting Possible Courses

As we await the “markets” opening in the U.S. here on Tuesday I wanted to update something I’ve been watching and notating over the last few weeks. e.g., A chart of the Russell 2000™ and what it may be portending via technical analysis. Here was the latest incarnation. To wit:

As I explained at that time what appeared to be playing out was what was called an ending diagonal, but as time went by every-time it appeared to be signaling that it may resolve in the manner it is best known for (i.e., odds favor a break in the opposite direction) the signals were, more often than not, proving out to be false positives. Then, when taking a further step back, the same pattern appeared to  forming – only on a much larger scale, which was the genesis and analysis for the above chart as I explained then.

Over the ensuing days this pattern looked as if it may resolve much like the original observation yet, this too has been completely negated as the index has pushed higher, and higher. i.e., Once the bottom drawn line crosses the top marking an “X” or “cross” any price action beyond negates the the observation or pattern entirely, i.e., something else is at play.

Now in the world of technical analysis patterns are subjective and many initial observations can be completely negated. i.e, time frame matters, where early indications can tend to play out giving more falls positives than their worth. Remember, true technical analysis is understanding you’re only playing with odds and probabilities via a visual representation of what buyers and sellers have done during a point in time. There is no “Holy Grail.”

However, with that said, one of the things most overlook when using this method of looking at “markets” is that: being wrong maybe, just being early. And one of the key signs of this are when differing patterns emerge yet, seem to show the same conclusion. I believe we may have such an instance playing out here in real=time. Here’s why, again, to wit:

(Source)

What the above chart represents is the same index (e.g., Russell 2000) using the same time intervals via the bars/candles as the earlier one directly above it. This is as of Monday’s close.

As one can see the original signal I was calling attention to see if it was playing out was a “throw-over.” The “markets” did just that yet, the price action just continued along the same path, again, negating the original observation. But when looking at it again what I noticed is that the original pattern has now seemed to morph into what is known as a “Mean Reversion Channel.”

Doesn’t matter if you are up to speed on technical analysis terminology and/or jargon. I am. And here’s what the above can possibly mean, and how to watch to see if it’s providing any pragmatic clues.

This type of pattern is very well used and respected, even by people who think the whole “technical thing” is nothing more than voodoo type analysis. (It’s not and the arguments made against are completely invalid, moronic, and feeble, but that’s for another article)

What this pattern also shows is what I implied earlier about how one pattern may be negated, but another one evolves showing the same possible results. For if you look at where the two lower boxes I’ve drawn appear, they are at the same levels respectively as the prior observations. Yet, there is a change and it’s an important one.

As you can see I’ve now drawn another box inside this channel called “no man’s land.” The reason why I named it this is because, for as long as the price of this index remains in this box? It’s all just noise. i.e., The market will probably go up as far, and as much, as it goes down, ping-ponging somewhere in the middle.

Not until you have a clear break below the bottom line, or back above the top line, will there be any indication of what may portend for the “markets.” But make no mistake, it’s in watching for a break to the downside that one should be paying attention to. Because if it does, then many are going to find themselves in a complete unfamiliar situation.

As always, we shall see.

© 2018 Mark St.Cyr