Support & Resistance Basics

[MRC & Co]

Peter,

Perhaps, however, look at some of the commodity charts lately, gone parabolic, had a consolidation period and then gone para again!

Perhaps the first two of the last 3 days saw the bulls snap up the bears selling pressure. Gaped up the following day, with the bulls remaining in control and ready for another run (though the falling of volume with this would worry me).

A few gaps to fill on the way up perhaps.

Whats your take on it tech? I would be wary with this one either way and probably wouldnt buy in immediately and would tighten up my stops if already in.

I do note though, you could probably find charts lately within the commodities that resemble the above, with differing outcomes. One more likely than the other no doubt though.

Note: I would be more worried however, if that last bar gapped up on extremelly high volume, with the close finishing lower than the open.

 

[MRC & Co]

(though the falling of volume with this would worry me).

Not to mention, as you say, the close range.

The falling volume is actually probably a good thing come to think of it. Shows selling pressure slowing down.

 

[tech/a]

Now have a look at your analysis knowing that the chart was upside down.



Would you buy ANZ?

 

[MRC & Co]

ha ha, good trick!

Said if anything I would go long. So inverted, would short if anything. Good to see its down today

But I would also look at the 4 year chart and its approaching support. Along with the fundamentals of the company and the banking industry in general at the moment which would give me more confidence to go short.

Just cannot bring myself to simply trade off a chart when there is other information that can be incorporated.

I am however, always grateful for any charting practice.

Thx

As far as charting, main things I would look for here (in the inverted example) is an increase in selling pressure and thus possible blow-off top and capitulation of the bulls (which was absorbed by the bulls in this one). Is this the correct thing to do?

 

[BBand]

Hi Tech,
I'm interested in anything that may improve my analysis, chart inversion is something that I dismissed a few years ago - but I appreciate that I probably got it wrong and it does have merit.

I think you may have mixed your charts up - the 1st chart shown is not the inverse of the ANZ chart.(I think)

My anz chart obviously corresponds to yours
If I adjust my time scale to that of the 1st chart
Take a print
Turn it print over and view the chart from the rear
I get the inverse of the original chart - and it looks nothing like the one shown on the post

Have I got something wrong?

Just using basic dow theory and a trend line- the trend is still in place

I appreciate exactly what you are saying and will give it more thought.
I suppose the volume profile would be the same for both charts

Thanks for the inspiration

Peter

 

[tech/a]

Pete.

Your right I think at the time I was buggerising around with a few chart examples.I didnt label the chart on it and when I saved it named it ANZ.
Could have been thinking of one and saving another.
My apologies but AAA for observation.

Still the idea applies --I can for the life of me find the chart in question---whats more it may well be somewhere in the body of a chart.

Thanks for pointing it out.

 

[BBand]

Fair enough.

Hope you don't think that I'm a "smarty pants" (probably the opposite)

I always check out anything that I think is of interest

I'm always looking for new ideas

Have a good day

Peter

 

[tech/a]

No not at all.

Found it it was QBE

 

[MRC & Co]

ha ha, good spot Peter! Cant say I took a close enough look to notice.

 

[drillinto]

Soros Sees Additional Market Declines After Temporary Reprieve

By Katherine Burton

April 3 (Bloomberg) -- Billionaire George Soros called the current financial crisis the worst since the Great Depression and said markets will fall more this year after a brief rebound.

``We had a good bottom,'' Soros said yesterday in an interview in New York, referring to the rally in stocks and the dollar after JPMorgan Chase & Co. agreed to buy Bear Stearns Cos. on March 17. ``This will probably not prove to be the final bottom,'' he said, adding the rebound may last six weeks to three months as the U.S. moves closer to a recession.

Last summer, worried about market disruptions that started with rising subprime-mortgage defaults, Soros, 77, returned to a more active role in managing the $17 billion Quantum Endowment Fund, whose profits pay for his philanthropic projects. Quantum returned an average of 30 percent a year before Soros started using outside managers in 2000 for much of his money.

He also decided to write a book, his 10th, ``The New Paradigm for Financial Markets'' (Public Affairs, 2008). Released today online, the book explains the causes of the current meltdown, a crisis he says has been in the making since 1980, and the trades he put in place this year to protect his wealth, much of it in Quantum.

Soros has bet on declines in the dollar, 10-year Treasuries and U.S. and European stocks. He expected foreign currencies to rise, as well as Chinese and Indian equities. The latter bet helped Quantum return 32 percent in 2007. Quantum's returns this year have ranged from up 3 percent to down 3 percent.

`Heightened Uncertainty'

The euro has climbed 7.5 percent against the dollar this year and the Japanese yen has gained 9.1 percent. These and other currencies may continue to strengthen, he said.

``There is an increasing unwillingness to hold dollars, though there's a lack of suitable alternatives,'' he said. ``It's a period of heightened uncertainty.''

Federal Reserve officials dropped their benchmark interest rate 2 percentage points this year to 2.25 percent, and Soros doesn't see that they can lower the rate much further, given the weak dollar.

``We are close to the limit,'' he said.

As for his wagers on developing markets, Soros hasn't abandoned his holdings in India, even with the 22 percent drop in the benchmark Indian index this year.

``The fundamentals remain good,'' he said. He is less certain about what will happen to Chinese H shares, which trade in Hong Kong.

Credit-Default Swaps

Credit default swaps -- a way to bet on the creditworthiness of a company -- may be the next crisis area because the market is unregulated, and it's impossible to know whether counterparties can meet their obligations in the event of a bond default. The market has a notional value of about $45 trillion -- or about half the total wealth of U.S. households.

Soros recommends the creation of an exchange with a sound capital structure and strict margin requirements, where current and future contracts could be traded.

The cause of the current troubles dates back to 1980, when U.S. President Ronald Reagan and U.K. Prime Minister Margaret Thatcher came to power, Soros said. It was during this time that borrowing ballooned and regulation of banks and financial markets became less stringent. These leaders, Soros said, believed that markets are self-correcting, meaning that if prices get out of whack, they will eventually revert to historical norms. Instead, this laissez-faire attitude created the current housing bubble, which in turn led to the seizing up of credit markets and the demise of Bear Stearns, Soros said.

To avoid a super-bubble in the future, Soros said banks must control their own borrowing. They must also curtail lending to clients such as hedge funds by demanding greater collateral and margin requirements on loans.

Asked if such moves would make it impossible to achieve returns like those of his pre-2000 days, Soros laughed.

``Since I'm designing these regulations, they would not hurt me,'' he said. ``We made direction bets but we haven't used leverage'' like the $25-to-$1 borrowing that brought down John Meriwether's Long-Term Capital Management LLC in 1998.

 

[drillinto]

Goldman Sach's 2009 Forecast: Uncertain But Not Uncharted

http://www.technologyinvestor.com/images/Goldman Outlook.pdf

 

[Sean K]

Goldman Sach's 2009 Forecast: Uncertain But Not Uncharted

http://www.technologyinvestor.com/images/Goldman Outlook.pdf

I checked this out to find some TA analysis on support and resistance, but alas, nada.

 

[bonkerrs]

http://www.investopedia.com/articles/technical/061801.asp

Going back awhile now! I'm reading up to get an understanding of trendlines, S/R.

In this article. In the 'Moving Averages' topic. It says that most traders will experiment with different time periods to see which works best for them. With so many possibilities - which is a common MA to start with if you are wanting to learn to trade short term? I've so many questions running in my head!!

 

[burglar]

If a share price breaks through resistance, does the old resistance become the new support?

Did I read it somewhere?

 

[CanOz]

If a share price breaks through resistance, does the old resistance become the new support?

Did I read it somewhere?

resistance become the new support

Yup, in theory that's correct.

CanOz

 

[pixel]

If a share price breaks through resistance, does the old resistance become the new support?

Did I read it somewhere?

sometimes it does; other times it doesn't.

If the breakout level (= previous resistance) is broken, re-tested, and shown to hold, I take it as an invitation to buy/ top up, assuming I've noticed the breakout in time to buy in. In that case, I also run a Fibonacci study to give me some rationale for a technical price target.
The chart below illustrates the principle: Note where support was found on 19/09, the day after the breakout.

 

[Boggo]

After a breakout and in probably the majority of cases the retest of the former resistance is always an area of interest.
The initial breakout and entry is only the first stage of the exercise, when it starts to retrace knowing where support should be and how it behaves at that level is the clue as to what happens next (obviously).

The example below is NST daily, a reasonable example of where the support held twice at the old resistance levels.
( Note that the 73 - 74 and the 94 - 95 lines are the resistance and support, colours highlight the transition from resistance to support laterally)

(click to expand)

 

[burglar]

... The example below is NST daily, a reasonable example of where the support held twice at the old resistance levels. ...

Thanks folks!
So this is where the "waves" come from.

 

[CanOz]

It might be worth thinking about the psychology at these levels...what are the participants thinking? What emotions are involved? From a value point of view, who is finding value at that point?

CanOz