Whipsaw: Technical Analysis | PSEi | DJIA | Stocks: PCOR 1/26/09

Tuesday, January 27, 2009

PCOR 1/26/09 - HUGE MOVE TODAY

PRICE AND TURNOVER
OHLC: 4.85 - 5.30 - 4.85 - 5.20
Change: +0.40 +8.3%
Volume: 4.917M (MA15 1.56M)

TECHNICALS
(1) Price gaps up at the open, then breaks out of the 11day resistance and retests the 5.30 level
(2) Price climbs above the MA15 and the MA60
(3) Price crosses over the Bollinger Band centerline and closes outside the upper limit
(4) Today's Volume is equivalent to 3x the 15day average and the 1month high
(5) STOCH moves out of the oversold level and above the slower line after a recent positive divergence - this combination and sequence is usually a highly reliable signal
(6) MACD crosses overthe signal line and is poised for a centerline crossover
(7) ATR reverses direction signalling an increase in daily volatility

ANALYSIS
Let me begin with a reminder that this stock is in a primary and intermediate downtrend. Having said that, in the short term, today's huge move is accompanied by a confluence of a price gap, resistance break, impressive volume, favorable indicator crossover signals coupled with a recent positive divergence, and a volatility spike. All of these point to the beginning of a potentially high momentum rally that saw the price of this stock break the 11day high and test the 20day resistance of 5.30 in one broad move. If this stock closes beyond 5.30 then the next price objective becomes the December 2008 high of 5.70. If the retest fails, then we could be in for an extended period of confinement within the 4.65/5.30 range. For now, there appears to be no clear catalyst for this upmove since the recent Ashmore/SMC stock option deal has already been widely announced in the recent weeks and should have already been fully discounted by the market.

OUTLOOK
The preponderance of favorable technical signals increases the likelihood that this stock will break above 5.30 in the course of this short term rally.

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* 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

Tuesday, January 27, 2009

PCOR 1/26/09 - HUGE MOVE TODAY

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