17 Oct
Best Trading Tips, Technical Signals

3 Ways A Market Can Move

SPX- Support Becomes ResistanceThere are only three ways a market can move: up, down, or sideways.

Trending Markets: Up & Down

Uptrends are known as bull markets. In the simplest sense uptrends occur when markets are moving up. The definition, of an uptrend varies depending on your time frame. A day trader tends to look at short intra-day time frames (10 min, 30min, 60 min etc). Swing traders (a.k.a. intermediate term traders) tend to look at daily or weekly charts. While, Long-term traders look at monthly, quarterly or annual charts. The beauty about Wall Street is that you are free to look at any time frame you want. The key is to find something that works for you and learn how the market reacts in that time-frame.

Sideways: Trading Ranges

Markets do not go straight up or down. They spend a lot of time moving sideways within uptrends and downtrends. The sideways action is important to understand because that is the market’s way of “setting” up for the next move (up or down). When a market moves sideways it is also known as a trading range (or base). Trading ranges are very common in the market and happen all the time. Moreover, they come in all different shapes and sizes. Once you learn how to identify trading ranges it gives you a huge edge on your competition because most people spend time analyzing a company’s sales and earnings but not how the stock actually trades.

Support and Resistance:

During these sideways moves, markets form two key areas: support and resistance. Support is known as the bottom of the trading range, while resistance is the top of the trading range. These areas are important because once resistance is broken a new uptrend forms and ideally the bulls want to see resistance become support. Conversely, once support is broken, a new downtrend forms, and the bears want to see support become resistance. As with any “rule” there are exceptions but the broader concept happens more often than not and is important for you to understand.

Putting This In Action:

So how does apply in real-time? As mentioned in prior articles, the market spent most of the summer forming a large topping pattern (after a big move). The S&P 500 sliced below support (1904-1905 area) of its large top pattern and, as of this writing, has yet to recover. The bears want to see support become resistance and a new trading range develop below the old one. So as long as the S&P 500 continues trading below 1905, by definition, a new downtrend has emerged and the path of least resistance is lower.

Earnings In Play

Right now, the short term focus is on earnings and how the market and leading stocks react to earnings.

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29 Apr
Best Trading Tips, Blog, Psychological Analysis, Technical Signals

Market States & 5 Market Cycles

Albert

Market States & Cycles
04.29.14

The stock market is constantly changing but the one constant throughout history is (has always and will always be ) human nature. The stories, stocks, centuries, asset class, bubbles, busts, change, but people don’t. That is why it is important to understand market cycles not just from a technical level but from a psychological level as well. If you develop or use a strategy that controls your risk and is built around how markets actually work you will do well on Wall Street. The hard part for many people is having the discipline to stay true to their strategy and actually follow it in real-time.

3 Market States: Up, Down, or Sideways

People, to their detriment, have a natural tendency to over-complicate most everything in life. Especially, difficult concepts that are not easily understood (e.g. Wall Street). At the most basic level there are only three directions any market or stock can move: Up, Down, or Sideways.

5 Market Cycles

Step 1 – Base
The first step before a trend begins is to see the market (or stock) build a base (move sideways). During the basing phase, the market is moving sideways between support and resistance. During the latter part of this phase, ideally the action will tighten up (almost like a coiled spring) and then at some point breakout above resistance (creating a new uptrend) or breakdown below support (creating a new downtrend).
Step 2 – Trend Begins
Ideally one would like to see the breakout occur on heavy volume which is a strong sign that large institutions are accumulating (buying) stock. Remember, it is important to note that price is primary and everything else (including volume) is secondary. Some people say you must have volume above X% in order for a proper signal to emerge but based on my research and experience, price is primary and volume criteria is secondary.
Step 3 – Normal Pullbacks
During the trend (up or down), it is very normal to see a breakout pullback and slightly fail initially (shake out the weak hands) then blast off again. Remember the market is counter-intuitive in nature and tends to fool  most people, most of the time. The general crowd tends to miss the first few breakouts and tends to buy after the move becomes “too obvious.” The smart money does the opposite- buys early and sells into strength down the road.
Step 4 – More Basing & Too Obvious Factor
As the trend (up or down) builds- the states rotate from trending to sideways and back to trending again (several bases develop within a trend). This is normal and healthy action as the trend develops, matures and eventually ends. After the trend matures, most people who doubted the move are now buying into it (fear of missing out). Thus creating more momentum and eventually the move becomes obvious and shows up on most technical/charting blogs.
Step 5 – Trend Ends- Tops/Bottoms
Remember that all trends eventually end which means traders (not long-term investors) will need to sell their stocks at some point. After a big move, up or down, fear builds; the smart (a.k.a. early) money is getting out while the dumb (late) money is getting “in.” This creates sloppy wide-and-loose action (after a big move) and typically suggests a top or bottom is close to (or in the process of) forming.
Rinse, Wash, Repeat- New Trends Begin
Once a top is completed (sideways action after a long uptrend) support is broken of that sideways consolidation and a new downtrend begins (go back to phase 1). The same is true after a long downtrend, the market bottoms, and a new uptrend eventually forms. Keep this mind as you buy and sell stocks. Ask yourself am smart, or dumb, money? Late or Early? What state is the market in (up, down, or sideways) and what phase of the cycle are we in. Want exact buy and sell signals in leading stocks? Join FindLeadingStocks.com
 

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30 Jan
Blog, Psychological Analysis, Technical Signals

History may not repeat…..but it sure RHYMES

Few old headlines that are very similar to recent headlines:
It’s a funny old World:
1989-1991: Housing and savings and loan crisis: Fed eases aggressively as economy enters deep recession
1992-1994: Existing financial architecture in Europe (ERM) blows apart
1995-1998: European convergence trade in both FX and Bond spreads keeps European currencies relatively stable vis a vis the USD with a good rally in 1998.By 1996 BUBA has lowered the discount rate to 2.5% while US rates remain well below the pre-crisis highs of 9.75% in 1989.
The carry trade and capital flow into emerging markets (Asia in particular) is center stage
March 1997: In a seemingly “innocuous” move the Fed “tinkers” by raising rates 25 basis points.
April 1997:Japan raises its consumption tax as USDJPY has rallied from a post Kobe Earthquake low of 79.7 to 127.50 . USDJPY collapse to 111 by June
June 1997-Jan 1998: Severe reaction in Asian currencies as “hot money flees”
August-October 1998 : Russia defaults, Long term capital folds and the Fed eases aggressively as the Equity market drops 22% (S&P)
History may not repeat…..but it sure RHYMES
Source: CitiFX
 

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13 Sep
Technical Signals

S&P 500 – 3 Bullish Breakouts This Week

 

SPX- 3 bullish breakouts above downward trendline of large triangle, above 50dma line and above double bottom 9.16.13

The S&P 500 is getting stronger, not weaker and this chart illustrates why:
It was very healthy to see the S&P 500 break and close above:
1. The downward trendline of its large triangle pattern (shown)
2. Its 50 DMA line (which is now support)
3. The middle of its double bottom pattern.
The Fed remains a wild card but the bulls remain in control of this market as long as support (recent lows near 1627) of the triangle remains intact.

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13 Oct
Technical Signals

Nasdaq 100 Is Forming A Very Bullish Pattern (Updated)

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This article was first published on September 26, 2010 (Click here for Full Story). The Chart Has been updated & as of this writing, the NDX is currently testing its Neckline!

Technical Analysis:

The tech-heavy Nasdaq 100 (NDX) is forming a very bullish two year inverse head and shoulders bottoming pattern. The accompanying annotated graph illustrates all the important events since the financial crisis began in 2007. It is very healthy to see that this index has nearly repaired all the damage of 2008 and is perched just below the neckline of its large base. It is also important to note that April 2010’s highs correspond with the highs in June 2008 which form the neckline of this pattern. Technically, a new buy signal will be triggered if the NDX manages to trade above the neckline (2060) of this very large pattern. Until then, this market is extended and patience is paramount.

Fundamental Analysis:

Fundamentally, the market is trading higher thanks to the ongoing global recovery, quantitative easing (QE 1 & 2), solid earnings, and a weaker dollar. As long as these factors remain at play, higher prices will likely follow. Trade accordingly.
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How We Can Help You:

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26 Sep
Technical Signals

Nasdaq 100 Is Forming A Very Bullish Pattern

Technical Analysis:

The tech-heavy Nasdaq 100 (NDX) is forming a very bullish two year inverse head and shoulders bottoming pattern. The accompanying annotated graph illustrates all the important events since the financial crisis began in 2007. It is very healthy to see that this index has nearly repaired all the damage of 2008 and is perched just below the neckline of its large base. It is also important to note that April 2010’s highs correspond with the highs in June 2008 which form the neckline of this pattern. Technically, a new buy signal will be triggered if the NDX manages to trade above the neckline (2060) of this very large pattern. Until then, this market is extended and patience is paramount.

Fundamental Analysis:

Fundamentally, the market is trading higher thanks to the ongoing global recovery, quantitative easing (QE 1 & 2), solid earnings, and a weaker dollar. As long as these factors remain at play, higher prices will likely follow. Trade accordingly.
———————————————————————————————————————————

Special Notice!
Advisory Services

Sarhan Consulting provides both global macro and equity only consulting services to institutional clients around the world. For years, its clientele has participated in the firm’s objective market-based outlook, which has one primary goal: to provide stable trading ideas across all asset classes.
Sarhan Capital’s consulting arm allows clients to participate in the idea generation process and be privy to many of Sarhan’s best ideas long before they are highlighted in other publications. In addition, clients receive objective feedback on their own ideas and are alerted each time Sarhan Capital traders buy and sell. Many institutional clients including hedge funds, private family offices, brokerages, registered investment advisers, and corporations, have turned to Sarhan Capital for personalized advisory/consulting services in recent years.

How We Can Help You:

  1. We employ a discretionary long/short global macro strategy that is profitable in both bull and bear markets.
  2. Achieve better results in the market by working with an objective third party who is not an internal “yes” man.
  3. Provide you with sound buy/sell ideas in real-time
  4. Provide objective feedback on your investment ideas and market outlook
  5. Contribute profitable ideas to your investment committee 
  6. All investment ideas are fully transparent, unbiased, and based on market action, not someone’s opinion.
  7. Help create uniformed structure within your organization!

 Contact Us Today To See How We Can Help You!

29 Jul
Blog, Technical Signals

Stock Market Resistance & Negative (Outside) Reversal Day From Prior Chart Highs

As of this writing 1:15pm EST 7.29.10, the major averages are tracing out an ominous technical pattern known as a “negative (outside) reversal day” after encountering resistance near their prior chart highs. It is also worrisome to see leading stocks get smacked as the major averages decline.
Negative Reversals:
Every so often, there are a few ominous technical signals that emerge. Prudent investors have learned to identify them due to the fact that they tend to lead to lower prices. One of these disconcerting technical signals is called a negative reversal.
A negative reversal occurs when a stock (or market average) opens higher but then reverses and ultimately closes lower. Negative reversals are often considered more severe if the stock’s initial gains lift it to a new high, but it then reverses and closes for a loss on heavier than average volume and ends near the session’s utmost lows. Outside reversals occur when the current day’s range eclipses the prior days levels. Negative reversals can occur on a daily, weekly, and monthly chart. In general, the longer the time frame involved, the more concern is prompted by the severity of the reversal. It is important to note that volume is directly correlated with the severity as well.

Prior Chart Highs Are Now Resistance:

Here are a few examples of prior chart highs now becoming resistance:

NYSE- prior chart highs is resistance


RUT- Resistance prior chart highs

RUT- Resistance prior chart highs

09 Nov
Technical Signals

Market Is Strong! Status Changed: Market In Confirmed Rally

The major averages scored a follow-through day (FTD) on Monday 11.09.2009 after the G-20 agreed to maintain its massive economic stimulus package as the global economy continues to recover. This sent the US dollar tumbling and a slew of stocks and commodities higher. Volume, a critical component of institutional demand, was higher than Friday’s levels as the major averages rallied which was helped produce a sound FTD day and confirm this week long rally attempt. In terms of new leadership, it was encouraging to see new 52-week highs outnumber new 52-week lows on the NYSE and Nasdaq exchange.
Make no mistake about it- this market is strong! Every pullback since the March lows has not exceeded -8% and the bulls have promptly showed up to quell the bearish pressure. The latest correction began on October 28, 2009 and ended today on November 9, 2009 when this rally-attempt was confirmed. To avoid any confusion, the official status of the market changed from “rally attempt” to “confirmed rally.” Now that the market is back in a confirmed rally, growth investors have a green light for accumulating stocks when they trigger fresh technical buy signals and break out of sound bases.

The Dow Jones Industrial Average 11.9.09
The Dow Jones Industrial Average 11.9.09

Chart Courtesy of Stockcharts.com

04 Nov
Technical Signals

Market Tracing Out A Bearish Head & Shoulders Pattern


While going through my normal after market analysis, I noticed that several of the popular equity indexes appear to be tracing out a bearish “Head & Shoulders” topping pattern (annotated charts below). Today marks the third day of their current rally attempt which means the window is open for a new “follow-through day” to emerge (which will confirm this current rally attempt and negate this ominous H&S pattern). However, if the markets rollover here and close below their respective necklines then another leg lower will most likely follow.
It is also important to note that several of the popular averages encountered resistance near their respective 50 DMA lines before turning lower today (SP500, NYSE, RUT, Nasdaq 100, Nasdaq Comp, & the mid cap S&P 400).