Technical Analysis Questions

[Sean K]

I don't think there's a thread devoted to TA questions so I thought I'd start one here, as I have a question.

I don't know a lot about gaps, but I think I read somewhere that a gap up in a chart would then become support, and a gap down would become resistance, but I'm not sure exactly what point this support or resistance should be. This is important when there are large gaps! (or is it )

Anywho, on this chart the stock has gapped up on 22 May and then the gap has seemed to turn into a support point, but it's not clear if it's the top of the gap, or the bottom of the gap, that is the support. Maybe because this is a small gap, it's less relevant but the general question remains.

Or, am I being too pedantic? Any ideas from the more worldly?

 

[reece55]

Kennas
Have a look here mate, pretty much tells you most of what you want to know....

The Incredible Charts website is a good one for generic technical analysis, showing real examples.....

Cheers

 

[Sean K]

Kennas
Have a look here mate, pretty much tells you most of what you want to know....

The Incredible Charts website is a good one for generic technical analysis, showing real examples.....

Cheers

Hmmmm, nice blog reece, couldn't find anything on gaps there, or even what type of gap this might be. Exhaustion gap perhaps, since it was closed.

My question is specifically about support and resistance at the gap, and you will not find the answer at Incredible Charts, or Chart School - my general guide.

Maybe you could be more specific in pointing me to the potential answer. Cheers.

 

[CFD]

The Incredible Charts site does not seem to get much coverage here and I'm not sure if I'm supposed to post a link, given they have their own stock/charting forum, but I think this was what reece55 was refering to;
www.incrediblecharts.com/technical/gaps.htm

 

[Sean K]

The Incredible Charts site does not seem to get much coverage here and I'm not sure if I'm supposed to post a link, given they have their own stock/charting forum, but I think this was what reece55 was refering to;
www.incrediblecharts.com/technical/gaps.htm

Thanks CFD, but their commentary does not cover S&R at gaps. Can you see it?

 

[CanOz]

Here mate...

http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:gaps_and_gap_analysis

 

[theasxgorilla]

Or, am I being too pedantic? Any ideas from the more worldly?

No, not pedantic, for the reason that in the example you give you're dealing with a very low priced stock so inaccuracies of a single cent will equate to many percent.

My experience of gaps in liquid instruments is that once formed they can tend to act like a magnet for price ie. at some time into the future they want to be filled.

One theory for the support/resistance zones forming where gaps were left is that if there is a significant amount of stop orders sitting around a level then the most effecient way for price to move through that zone is to go over it. What would have been resistance on the way up can become support on the way down, or vice versa, of course.

Take this example with oil recently. Price gap up, the gap is filled and price find support with a double bottom forming at $62.50ish.

 

[theasxgorilla]

Or in the other direction...a little closer to home too, Oxiana:

 

[theasxgorilla]

A handy little article on gaps:

http://www.streetauthority.com/terms/gaps-candles.asp

From the article:

"Once a window has occurred, it becomes an important support and resistance area. If the window occurred in a downtrend, then on any subsequent rally the upper end of the window should turn back prices. If the window was created in an uptrend, then when prices rally the bottom edge of the window should be the lowest point of decline. Further candle theory holds that the test of all open windows is likely. The key thing to examine is what happens on this test."

ASX.G

 

[Sean K]

A handy little article on gaps:

http://www.streetauthority.com/terms/gaps-candles.asp

From the article:

"Once a window has occurred, it becomes an important support and resistance area. If the window occurred in a downtrend, then on any subsequent rally the upper end of the window should turn back prices. If the window was created in an uptrend, then when prices rally the bottom edge of the window should be the lowest point of decline. Further candle theory holds that the test of all open windows is likely. The key thing to examine is what happens on this test."

ASX.G

Thanks Gorilla, those points were what I was after, cheers.

 

[Sean K]

Here mate...

http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:gaps_and_gap_analysis

Thanks Canuckaussie, I haven't seen that article in stcokcharts before, cheers.

What I get in addition to that is that for common gaps then what Gorilla has pointed out is tru:

usually retraces at the least to the last day before the gap. This is also known as closing the gap.

So, the support line on the way back down is at the lower side of the gap.

However, in breakaway gaps, or runaway gaps, obviously the gap doesn't need to be filled by definition, so it's no relevant. And exhaustion gaps, well, the gap will be filled, but there may not be support found. The earlier chart I posted may turn into exhaustion, but I hope not.

Thanks.

 

[R0n1n]

guys, have a question, if a gap goes un filled for long time, will it remain unfilled or will the price come down/up to fill it down the line. For example see the RIO chart below. Its got an unfilled gap on 3rd of April, 3rd and 4th May and the big gap on the 6th june followed by a smaller one. So will it fill the most recent gap first or drop price to fill the last ones and then come back up. thanx.

 

[Sean K]

guys, have a question, if a gap goes un filled for long time, will it remain unfilled or will the price come down/up to fill it down the line. For example see the RIO chart below. Its got an unfilled gap on 3rd of April, 3rd and 4th May and the big gap on the 6th june followed by a smaller one. So will it fill the most recent gap first or drop price to fill the last ones and then come back up. thanx.

3 April and 4 May look unlikely to be filled in the short term. April looks like a breakaway gap, and May a runaway gap. Maybe pick from this list:

Common Gap

As the name suggests, common gaps are generally of no significance; they are frequently found on price charts. They can be caused by a stock going ex-dividend. Common gaps are generally “filled” within a short period of time. Filled is the common term for when the price retraces back to the previous level and closes the gap. It is important to be able to recognize common gaps and not fall into the trap of thinking that they are signals of market strength or weakness.

Breakaway Gap

Breakaway gaps are the ones that astute traders watch for because they can be used to identify the beginnings of a trend. Let’s first look at where we find this type of gap. Generally speaking, breakaway gaps occur at the completion of an important pricing pattern and signal the commencement of a significant market move. Markets often get caught in congestion areas (i.e., an area in which prices range trade for a short period of time as prices fail to penetrate support and resistance levels).

To break out of theses areas requires market enthusiasm (either positive or negative) or a fundamental development that causes prices to “break out”. Breakaway gaps usually occur on heavy volume. A stronger signal is given if volume does not build until the gap occurs. The point of the breakout now becomes the next support level (upside breakout) and resistance (downside breakout).

It is important at this point to correct a myth commonly associated with gap analysis that “gaps are always filled”. This simply is not true. As a rule, breakaway gaps are not filled because the market has shifted direction.

Runaway Gap (aka Continuation Gap)

After a market has found direction and the trend is established, it is common for a runaway gap to occur. The reason this type of gap develops is that interest in the market increases as traders waiting for the pull-back give up and decide to buy in instead.

In an upward trending market, runaway gaps are a sign of strength and, in a downward tending market, a sign of weakness.

Runaway gaps are used by some traders as a way of “measuring” how much further a trend has to run. The most common method is to use the distance from the start of the trend to the gap as the half way point on the length of the trend.

Exhaustion Gap

Exhaustion gaps are those that appear near the end of the trend and occur after the other two types of chart gaps have been identified. They are identified by high volume and large price difference between the previous day’s close and the new opening price.

They are often mistaken for a runaway gap rather than as a signal that the trend is nearing an end.

Exhaustion gaps occur as the market enters a state of panic and prices move sharply; investors pile in on the idea that the market is about to run away rather than correctly seeing that the trend is almost complete. Exhaustion gaps are identified by the exceptionally high volume of trading and the fact that the gap is filled within a short time frame (i.e., when prices close under the last gap). Exhaustion gaps are a signal that the market is at a turning point.

 

[nizar]

I don't think there's a thread devoted to TA questions so I thought I'd start one here, as I have a question.

I don't know a lot about gaps, but I think I read somewhere that a gap up in a chart would then become support, and a gap down would become resistance, but I'm not sure exactly what point this support or resistance should be. This is important when there are large gaps! (or is it )

Anywho, on this chart the stock has gapped up on 22 May and then the gap has seemed to turn into a support point, but it's not clear if it's the top of the gap, or the bottom of the gap, that is the support. Maybe because this is a small gap, it's less relevant but the general question remains.

Or, am I being too pedantic? Any ideas from the more worldly?

Hi Kennas.
Looks to me like a breakaway candle on that chart you posted.
Like VRE in its early April run, though one of the gaps did end up getting filled, the other one still remains, between 37 and 37.5.

But some gaps never get filled?

What do you think of the MPO chart?
So so textbook.
Uptrend of the year IMO...

Maybe champion stocks never fill gaps?
FMG has gaps at around $19 and one just below $25

 

[Kauri]

JULIA Kauri, have you considered taking into account the fundamental situation as a sort of modification to your pure TA?

Hi Julia,
Yes, I have looked at fundementals and considered incorporating it into my T.A.... but I have only gone as far as using a basic check via a spreadsheet to check that the company is sound. For various reasons I have decided not to go any further than that.
Firstly my make-up I guess you would call it, I am a visual sort of person and patterns etc seem to stand out to me where-as numbber crunching brings tears to my eyes.. ..
I also trade via DMA CFD GSL's... so enter a position with approx 94% leveraged, I therefore pay interest on the outstanding 94% of the position..and if it goes into profit on the profit as well as the original, so for instance if I put down $600 on a share I am immediately paying ursury on $9600... and if perchance that share doubles I would be paying interest on $19600.... ..
Next I try to take as large a chunk out of each trend as I can, and exit when I get signals that the trend may correct a bit or pause for a time.. saves on the interest being paid on a temporarily stalled share..
Even though it is not realistic I have attached the chart of longer-term ASX. If we both bought at the BUY arrow in 04 and you held all the way you would have 100% of this trend. Had I bought at the same time and my T.A was unusually accurate I would have sold at $35.29 and rebought at $28.80 which would give me something like %120 of the trend.
When it comes to CGT, apart from the hoary old cliche of you only pay it if you make a profit, the extra interest I would incur on holding a non-trending share along with opportunity cost of not being able to take a position in another trending share because my capital is tied up probably balances out with the CGT benefits I miss out on.
Also just in general re ASX.. fundementally do you see it as being to continue steadily upwards next year at the same rate as this year given that the once off super super rules this year have given it a really unique leg up?? I'm personally not aware of how much this one off has boosted them but imagine it would be a substantial amount??

An aside to the above... in no way critical of anyone, I am just interested..
I see a lot of fundementals posted for in particular mining exploration co's. Do you see it as possible to prepare fundemental eval's for them when in reality their only source of income is going cap in hand to the public through various guises i.e. options and option conversions, cap raisings, new share issues etc?

Cheers
Kauri

PS... If this is not as lucid as it should be I'm sorry... just typed out the reply.. went to post it and I had taken too long and had been logged out.. so have re-typed it... memo to me... Ctrl-C...CtrlV..

 

[Julia]

Hi Julia,
I also trade via DMA CFD GSL's... so enter a position with approx 94% leveraged, I therefore pay interest on the outstanding 94% of the position..and if it goes into profit on the profit as well as the original, so for instance if I put down $600 on a share I am immediately paying ursury on $9600... and if perchance that share doubles I would be paying interest on $19600.... ..

OK, that puts a different light on it. I wasn't considering leverage/interest.

Even though it is not realistic I have attached the chart of longer-term ASX. If we both bought at the BUY arrow in 04 and you held all the way you would have 100% of this trend. Had I bought at the same time and my T.A was unusually accurate I would have sold at $35.29 and rebought at $28.80 which would give me something like %120 of the trend.
When it comes to CGT, apart from the hoary old cliche of you only pay it if you make a profit, the extra interest I would incur on holding a non-trending share along with opportunity cost of not being able to take a position in another trending share because my capital is tied up probably balances out with the CGT benefits I miss out on.

Yes, if it were to trade sideways for some time, I'd do the same. It's just that ASX has been fairly consistently upwards.

Also just in general re ASX.. fundementally do you see it as being to continue steadily upwards next year at the same rate as this year given that the once off super super rules this year have given it a really unique leg up?? I'm personally not aware of how much this one off has boosted them but imagine it would be a substantial amount??

I don't entirely subscribe to the view that all the action will have occurred this year. At present ASX is amongst my long term holds. If some competitor were to appear or any other factor change, then I'd obviously review it.

Sorry, I don't know enough about mining companies to make any comment about them.[/QUOTE]

Thanks for interesting response. Best of luck.

Julia

 

[Kauri]

Thanks Julia... always allowing that quite seriously I am wrong more often than I am right, the E/W stuff is not the only reason I think that ASX may have a period of consolidation due... although I rely mainly on straight trend-lines as opposed to parabolic ones, when they fit and tie in with my other analysis I add them to the equation.... I can feel the egg on my face already
Cheers
Kauri

 

[BlindSquirrel]

THREAD RESURRECT!

I've come across this peculiar formation in one of my income holdings:

There have been a bunch of days which are all red but are in an increasing trend. What is the market thinking for such a period?
(Bonus internet points for guessing the major ticker)

 

[tech/a]

Gaps on open then trading closes below or at the Open
showing a red day. Pretty common

 

[IFocus]

THREAD RESURRECT!

I've come across this peculiar formation in one of my income holdings:
View attachment 96446
There have been a bunch of days which are all red but are in an increasing trend. What is the market thinking for such a period?
(Bonus internet points for guessing the major ticker)

Can happen as a larger player exits against buying pressure not wanting to exhaust demand to early or pretty much a 100's other reasons.

Very old saying was retail open the market professionals closed it, probably put out by institutions that gaped open a stock then sold into the break out traders etc.

The last two bars are showing supply possibly exhausted and price to move up.