DJIA 5/22/08 STOCK MARKET TECHNICAL ANALYSIS

Friday, May 23, 2008

DJIA 5/22/08 STOCK MARKET TECHNICAL ANALYSIS

Even with today's 24pt advance, the Dow remains below the broken trendline and prior support for the second day and those using the 2-day filter will have accepted this break as significant and traded this signal appropriately. The March to May 2008 up trendline having been interrupted, we will continue to mindful of any near term breaks of prior support/resistance levels and the development of new ones. For now, the price objective becomes 12269 which is coincidentally the next visible support and the 68.1% retracement level of the recent short term uptrend. If you are long the Diamonds Trust Series 1(DIA:AMEX), an ETF designed to capture the price performance of the DJIA: SELL.

TRENDS
* PRIMARY UPTREND | Corrective wave | Prior support 11634 | Prior resistance 14030 |
* INTERMEDIATE DOWNTREND | Directional wave | Prior support 11634 | Prior resistance 13780 | Relapse below the previously broken down trendline | Break of important support level
* UNDEFINED MINOR TREND | Downswing | Prior support, Fibo retracement, and price objective 12269 | Prior resistance 13136 | Recently broken up trendline | Recently broken 12715 support level|

PRICE, TURNOVER & MARKET BREADTH
Close: 12,625.62 * Change: +24.43 (0.19%) * Volume: 659.4M * Net Advancing Issues: -341 * Net New Highs: -27 * Net Up Volume: +266,811,862

STOCK MARKET, ECONOMY & OTHER HEADLINES
AP|Stocks advance after two-day plunge; oil declines|Thur May 22, 5:39 pm ET
AP|Gov't home price index posts largest drop in 17-year history|Thur May 22, 3:22 pm ET
AP|Jobless claims drop to lowest level in 4 weeks|Thur May 22, 5:43 pm ET
Reuters|Oil Prices Settle Near $131 after Intraday Record| 22 May 2008 | 03:41 PM ET

No comments:

Post a Comment

Whipsaw's Library

* CYCLES: A TRIBUTE TO J.M.HURST by Brian Millard

* ELLIOT WAVE PRINCIPLE: KEY TO MARKET BEHAVIOR by Frost and Prechter

* FIBONACCI APPLICATIONS & STRATEGIES FOR TRADERS by Robert Fischer

* FORECASTING FINANCIAL MARKETS: THE PSYCHOLOGY OF SUCCESSFUL INVESTING by Tony Plummer

* JAPANESE CANDLESTICK CHARTING TECHNIQUES by Steve Nison

* POINT & FIGURE COMMODITY & STOCK TRADING TECHNIQUES by Kermit Zieg Jr.

* PROFIT MAGIC OF STOCK TRANSACTION TIMING by J.M.Hurst

* TECHNICAL ANALYSIS EXPLAINED by Martin Pring

* TECHNICAL ANALYSIS OF STOCK TRENDS by Edwards and Magee

* TECHNICAL ANALYSIS OF THE FINANCIAL MARKETS by John Murphy

* TECHNICAL ANALYSIS: THE COMPLETE RESOURCE FOR FINANCIAL MARKET TECHNICIANS by Kirkpatrick and Dahlquist

TECHNICAL ANALYSIS EDUCATION

(Excerpts from J.Murphy)

BASIC PREMISE OF TECHNICAL ANALYSIS
1. Market action discounts everything.
2. Prices move in trends.
3. History repeats itself.

"The technician believes that anything that can possibly affect the price - fundamentally, politically, psychologically, or otherwise - is actually reflected in the price of that market. It follows, therefore, that a study of price action is all that is required. All the technician is actually claiming is that price action should reflect shifts in supply and demand. If demand exceeds supply, prices should rise. If supply exceeds demand, prices should fall. This action is the basis of all economic and fundamental forecasting."

"The concept of trend is absolutely essential to the technical approach. The whole purpose of charting the price action of a market is to identify trends in early stages of their development for the purpose of trading in the direction of those trends. There is a corollary to the premise that prices move in trends - a trend is more likely to continue than to reverse. Another way to state this corollary is that a trend in motion will continue in the same direction until it reverses. " (p.3)

"Much of the body of technical analysis and the study of market action has to do with the study of human psychology. Chart patterns, for example, which have been identified and categorized over the past one hundred years, reflect certain pictures that appear on price charts. These pictures reveal the bullish or bearish psychology of the market. Since these patterns have worked well in the past, it is assumed that they will continue to work well in the future. They are based on the study of human psychology, which tends not to change."

BASIC TENETS OF THE DOW THEORY
1. Averages discount everything.
2. The market has 3 trends.
3. Major trends have 3 phases.
4. The averages must confirm each other.
5. Volume must confirm the trend.
6. A trend is assumed to be in effect until it gives definite signals that it has reversed.

TREND FOLLOWING
"The whole purpose of charting the price action of a market is to identify trends in early stages of their development for the purpose of trading in the direction of those trends."

SPOTTING REVERSALS
"The most difficult task for a Dow theorist, or any trend follower for that matter, is being able to distinguish between a normal secondary correction in an existing trend and the first leg of a new trend in the opposite direction." (p.29)

REVERSAL SCENARIOS (p.29)
1. Failure swing
2. Non-failure swing

CLASSIFICATION OF TRENDS
1. Major (or primary)
2. Intermediate (or secondary)
3. Near term (short term or minor)

TRADING TIME HORIZON
"As a general statement, most trend following approaches focus on the intermediate trend, which may last for several months. The near term trend is used primarily for timing purposes. In an intermediate uptrend, short term setbacks would be used to initiate long positions." (p.54)

THE ELEMENTS OF SUCCESSFUL TRADING
1. Price forecasting
2. Trading tactics
3. Money management

TRADING TACTICS
1. Tactics on breakouts
2. The breaking of trendlines
3. The use of support and resistance
4. The use of % retracements
5. The use of gaps

MONEY MANAGEMENT
1. Maximum loss limit per trade
2. Risk reward ratio
3. Fund allocation

PROTECTIVE STOPS
"For purposes of placing protective stops, support and resistance levels are most valuable." (p.401)

BUILDING BLOCKS OF TECHNICAL ANALYSIS
1. Support and resistance
2. Trendlines and channels
3. Percentage retracements
4. Speed resistance lines
5. Gaps
6. Reversal days

(Excerpts from M.Pring)

ONE AND TWO-BAR PRICE PATTERNS
One and two-bar patterns reflect changes in psychology that have very short term influence on prices.

1. Outside bars
2. Inside bars
3. Two bar reversal
4. Key reversal bars
5. Exhaustion bars
6. Pinocchio bars

Friday, May 23, 2008