XAO Technical Analysis

[Magdoran]

Re: XAO Analysis

With regards to accounting for lag, you are probably right. There could be another dimension added to this analysis that accounts for lag using rate-of-change or some other measure to quantify how strongly the index is pulling away from its moving average. And perhaps a better moving average could have been chosen, like an exponential. And with regards to being "rough", again, yes, you are probably right. But for those who are reading this and wondering if moving averages are a useless indicator and ought to be immediately ditched in exchange for something more sophisticated or refined, a balanced answer should include reference to those people who use something as "fundamentally flawed" as an average in their trading and continue to make profits.

To quote Ed Seykota's site (http://www.seykota.com):

"A trend is a general drift or tendency in a set of data. All measurements of trend involve taking a current reading and a historical reading and comparing them. If the current reading is higher than the historical reading, we have an up-trend. If lower, we have a down-trend. In the improbable event of an exact match, we have a sideways trend."

Using a moving average can be a simple, visual way of determining if you have a trend, how far that trend has moved over a period of time and how far away it is from a reference point. Its simple and effective. You could say my preference is to be "The Beatles" in my analysis, rather than say, Stevie Ray Vaughan or Tommy Emmanuel. Or as Miles Davis would put it, "I always listen to what I can leave out,". I'm keen to eliminate that which seems superfluous.



The use of the MAs on a market that has shown patterns in its trending for the last 4 years can be a form of adaptive analysis. Think of it like a blue print for a trading system that has a set of paramaters determined from back testing on a large body of historical data. If the market steps outside of the parameters of that blue print then it suggests we are in uncharted territory. Time to find a system, or in my case, a new reference model. Markets are always the same in that they're always changing. We know this.



When we discuss a good trading system that uses moving averages getting you in and out at the wrong time, we're probably refering to whip-sawing, right?? Its real, it exists, and its part of trading. Moving averages can be used effectively in trend following systems that rely on high R multiple trades to offset the +/-1R trades that occur during whip-saws or false positives or whatever you want to call them. For this reason systems such as this can often be "wrong" more than 50% of the time. We should not confuse being right with being profitable. They're two different needs. Given enough time a trader will adopt a system which suits his/her needs and personality.

My analysis is backward looking. And it will always lag the market, as I am using purely price as an indicator of price. I don't pretend to be able to see beyond the last bar on the chart and I don't need to be "right". Hunches are good enough. What I can tell you is when price is behaving differently in this move than what it has done previously, the signficance of that is up to each of us to weigh.



This doesn't really tell us anything new. I remember going to numerous market presentations around 2001/02 and being told by suited-up "experts" what to expect. Single digit returns for the remainder of the decade was bandied around repeatedly. Nobody saw this bull market coming, nobody saw the duration or strength that it has shown and nobody will see its end. If you are going to forecast, forecast often...isn't that how the saying goes??

Hello TAG,

I knew when I made the comment that you’d probably respond – not detracting from your informative posts, but seeing MAs used in your analysis twigged a motivation to comment...

I think you are missing my point I have raised in many posts before: In my view, moving averages actually obscure the chartist/analyst from seeing much of what is going on in the market. As McLaren said, it’s trading “shadows against a wall”.

Looking backwards won’t alert you to patterns suggesting a probability of a change in trend. If you do this, you won’t see the cliff, or the spring board. A lot of course depends on the time frame you are trading/investing in. Basic MAs can help for the long term (as tech has done with techtrader).

Anyway, my comments were about using MAs to predict where and when a potential crash/correction would be actually. You were using the 200 day moving average as the basis for that analysis. My response was that a blow off trend can fool a moving average system, even a long term one. They aren’t a forecasting tool, and have in my view negative effects to chart analysis (as much as some rudimentary ones to try to keep you on the right side of the trend. But they obscure counter trends, false breaks, exhaustions etc. I’m sure you ‘d agree with this, wouldn’t you?

As for forecasts, actually, I have made a range of forecasts on this site, as you know – there are some that are current right now, so yes, I have said some things that are new if you were looking... What I’m saying now is, yup there are patterns alerting us to the potential for a correction of some sort, the problem is when. I’m saying, I can’t tell you when the correction is likely to happen right now, but what I can say is I don’t think it’s likely at least until the middle of July. How the market trades into that point will let me make forecasts with much more certainty.

What you need to grasp is that the forecasting style hinges on key “choke” or “tipping” points where outcomes that are in the balance can have major effects into the future, and identifying them and utilising them. It’s like one of those SciFi movies where they go back in time and stuff something up, and the future changes (you know the time line idea – Bradbury did an early version of this about shooting dinosaurs in the past, and one guy treads on an ancient moth, and changes the present as a result).

I look at it this way, the charts of the future are not yet written. I do not believe in a deterministic universe, or a deterministic market. But I am swayed by chaos models, and the idea of estimating probabilities, and deciphering market patterns. I do believer that there is an inherent order to markets, and that if you look at the market the right way there are a host of clues that give you a significant edge that are unorthodox. So, in my view, moving averages and oscillators are misused by the majority, and in many cases actually obscure the aspiring technical analyst from really seeing the market.

By the way, I do have some really long range forecasts, but I’m not going to post these on a public forum, especially when there are so many possibilities that can intervene in the interim, but some in their original form survive and work like a charm.... the majority though can be right in time or price, but often not both. Hence I only post up shorter range forecasts which are easier to grasp, rather than a full campaign map... who’d read it anyway?


Regards


Magdoran

 

[theasxgorilla]

Re: XAO Analysis

Looking backwards won’t alert you to patterns suggesting a probability of a change in trend. If you do this, you won’t see the cliff, or the spring board. A lot of course depends on the time frame you are trading/investing in. Basic MAs can help for the long term (as tech has done with techtrader).

If you're prepared to trade with 15 minute data you can take what works with MAs on a weekly chart and make it work on any hourly chart. Your trade opportunity will increase, as will the occurance of the patterns you describe.

Anyway, my comments were about using MAs to predict where and when a potential crash/correction would be actually. You were using the 200 day moving average as the basis for that analysis. My response was that a blow off trend can fool a moving average system, even a long term one. They aren’t a forecasting tool, and have in my view negative effects to chart analysis (as much as some rudimentary ones to try to keep you on the right side of the trend. But they obscure counter trends, false breaks, exhaustions etc. I’m sure you ‘d agree with this, wouldn’t you?

I agree, utterly. Although I question how much we need to identify these patterns to be effective traders. The answer is of course different for different traders.

NB. Technically I wasn't predicting, but working some rudimentary stats which said that of the 11 times the XAO has closed below its 40-day SMA during this bull run, 7 of those have resulted in continued corrective price activity. Its not sophisticated by any stretch, and if you spend a lot of time on the science of market geometry it probably seems crass. But there are people out there who use the 200-day MA. Try googling "200-day moving average" and compare the hits you get against other MA lengths. Its my summation that irrespective of whether its a magic MA length or not, that there are many non-technical analysis types who use this MA as their sole technical thermostat if you like. The XAO has NEVER closed below its 200-day MA during this bull run. That is worth knowing, IMO, as the day it does it could become a self-fulfilling prophecy.

 

[rico01]

Re: XAO Analysis

I don,t want to butt in on your arguing but do think there is a slight chance the market is gettin a little ahead of itself . My data doesn,t go back far enough to show where we are in comparison to the 87 correction,I'd like to see a chart going back to prior 87 if anyone can do it.
I think this chart tells astory though any comments?

 

[rico01]

Re: XAO Analysis

I don,t want to butt in on your arguing but do think there is a slight chance the market is gettin a little ahead of itself . My data doesn,t go back far enough to show where we are in comparison to the 87 correction,I'd like to see a chart going back to prior 87 if anyone can do it.
I think this chart tells astory though any comments?

sorry having problems loading charts

 

[Garpal Gumnut]

Re: XAO Analysis

sorry having problems loading charts

Here you go rico1, a monthly chart back to Jan 1980

Garpal

 

[rico01]

Re: XAO Analysis

Here you go rico1, a monthly chart back to Jan 1980

Garpal

well thank you
what i was trying to point out is how far ahead we are above the average trend and if history were to repeat itself we most likely are going to get back to that average

 

[IFocus]

Re: XAO Analysis

Hi Guys

A couple of clichés come to mind

“a dog and his bone, a duck and his mogie” LOL no disrespect directed at anyone.

Tech what’s that saying “if you keep doing the same thing expecting a different result…….”

Perhaps a different approach to the method of your interaction with Gann practitioners may result in another outcome.

Personally using charts makes sense to myself if I want to progress to a higher level of understanding. Progress in my own case is always exponentially faster when I remove my projection of self-worth from the discussion i.e. the need to be right.

Mean while here is one of GET’s EW take on the weekly and daily for the XJO the weekly i find interesting a move back to the minor wave perhapes?

 

[Sean K]

Re: XAO Analysis

well thank you
what i was trying to point out is how far ahead we are above the average trend and if history were to repeat itself we most likely are going to get back to that average

With the time scale I think you need a semi log chart to see the 'true' trajectory of the index. This will make it less parabolic. Sorry, haven't got one. Anyone? Or disagree?

 

[rico01]

Re: XAO Analysis

well thank you
what i was trying to point out is how far ahead we are above the average trend and if history were to repeat itself we most likely are going to get back to that average

Here is my chart finally

 

[Garpal Gumnut]

Re: XAO Analysis

With the time scale I think you need a semi log chart to see the 'true' trajectory of the index. This will make it less parabolic. Sorry, haven't got one. Anyone? Or disagree?

Interesting comment. The recent increase in XAO does appear less dramatic on a semilog scale.

Enclosed is the semilog.

Garpal

 

[IFocus]

Re: XAO Analysis

Agree Kennas

Also current market valuations are more than realistic 87 was way out of whack current concern for me is China market PE 40 to 50 compare Australian PE 14.9 how the Chinese manage this will affect us


Here is the XAO monthly semi log

Focus

 

[rico01]

Re: XAO Analysis

Interesting comment. The recent increase in XAO does appear less dramatic on a semilog scale.

Enclosed is the semilog.

Garpal

Can someone explain semi-log, I haven,t heard that term before.

 

[IFocus]

Re: XAO Analysis

A real basic way of explanation is compare the numbers of a 1% rise of the index today at 6000 and a rise of the index of 1% at 2000 points in 1987

Focus

 

[Garpal Gumnut]

Re: XAO Analysis

Can someone explain semi-log, I haven,t heard that term before.

Below is a definition from Metastock help page which explains it as well as I've seen. I was never good at maths or calculus. Basically it "costs" as much in todays dollars to go from 6000 on xao to 12000 on xao as it did "cost" to go from 3000 to 6000 on xao. The relative move is the same. Thus in doubling your money you have travelled the same distance on the Y axis. Thats how I think it through


Semi-log Scale.

In a semi-log scaled chart, the distance between each point is exponential. For example, the distance between 30 and 60 (a 30 point, 100% increase) is the same as the distance between 60 and 120 (a 60 point, but still 100% increase). Semi-log scaling is used to compare relative price changes rather than physical point changes.


Garpal

 

[rico01]

Re: XAO Analysis

Below is a definition from Metastock help page which explains it as well as I've seen. I was never good at maths or calculus. Basically it "costs" as much in todays dollars to go from 6000 on xao to 12000 on xao as it did "cost" to go from 3000 to 6000 on xao. The relative move is the same. Thus in doubling your money you have travelled the same distance on the Y axis. Thats how I think it through


Semi-log Scale.

In a semi-log scaled chart, the distance between each point is exponential. For example, the distance between 30 and 60 (a 30 point, 100% increase) is the same as the distance between 60 and 120 (a 60 point, but still 100% increase). Semi-log scaling is used to compare relative price changes rather than physical point changes.

thank you GG & IF
I have been looking at it and now realise that on the right side of the chart th e value for 1000 / 2000 / 3000 and so on get closer together the higher they are taking out that parabolic thing you were talking about however we have got the 20th ann of 1987 coming up and i,m sure there's someone [who reads and writes on this thread ] might have some thoughts of there own to add you know history always repeats.

 

[theasxgorilla]

Re: XAO Analysis

A real basic way of explanation is compare the numbers of a 1% rise of the index today at 6000 and a rise of the index of 1% at 2000 points in 1987

Focus

Apologies for ranting on topic.

Another way is to say it is that a doubling of the index from 1000 to 2000 is represented on the Y-Axis by the same 'length' of price as a doubling from 2000 to 4000 or 4000 to 8000.

On the attached chart you can see that during the greater up move which ran from '82 to '87 the market doubled more than two times. This bull market, by comparison, has barely doubled once in over 4 years. Its the duration (time) of this bull market that makes it significant. That combined with the otherwise benign nature of any pullbacks.

You will see from the chart that the '82-'87 run was significantly interupted by a somewhat deep pullback around Jan-Jun '84. The absense of such a hiccup during this bull market means that its longer in duration than the the one from '84 to '87. But the price moves have not been as aggressive. It's that old time-price interplay which is the favoured space of the Gann analysts.

And it makes a lot of sense too. I don't pretend to believe the world is as balanced as 1 unit of price for every 1 unit of time, because the real world is not...but the simple idea that in this bull market price has travelled less in more time should tell people that this bull market is less aggressive than the '82-'84-'87 move. When price and time are more balanced then in the real world fundamental factors have a greater chance of keeping up eg. productivity gains which translate to earnings (the real reason many buy and sell shares).

To stir the pot further, as an avid follower of technology the time we live in today is teeming with technology driven productivity gains. The limiting factor is the time to adapt and implement them into businesses and our daily lives (7 yrs since dotcom...long enough for us to learn how to say iPod). As an example, think of all the people who still don't use a GPS and drive around and around and around wasting time. The mass-adoption of this single tool alone will increase productivity out of sight.

I think there is more upside potential going forward than what people think.

 

[doctorj]

Re: XAO Analysis

This cat fight has gone on long enough. I've moved a number of off topic posts to this thread. Please continue that there. This thread is for the analysis of the XAO only - not Zinc, ZFX, tea leaves or anything else.

 

[theasxgorilla]

Re: XAO Analysis

we have got the 20th ann of 1987 coming up and i,m sure there's someone [who reads and writes on this thread ] might have some thoughts of there own to add you know history always repeats.

I prefer the Mark Twain variant, "history doesn't repeat itself but it does rhyme".

Yes, this October ought to be an interesting time. Or if enough clever people pre-empt it the peak may come a little earlier than the expected fact. I wonder if this could be what is happening with this most recent peak, prior to what was expected to be a last ditch rush to amass super contributions before June 30 cut-off.

 

[Magdoran]

Re: XAO Analysis

This cat fight has gone on long enough. I've moved a number of off topic posts to this thread. Please continue that there. This thread is for the analysis of the XAO only - not Zinc, ZFX, tea leaves or anything else.

Thanks doctorj,


I love the title, “Handbags at 20 paces”, very funny. I almost lost my lunch when I read the title… hahaha!

Fully agree that it was off topic and concur with the way you have dealt with it.


Well done on the way you transferred it, an excellent handling of the content which retained the integrity of what transpired.


Regards


Magdoran

 

[Kauri]

Re: XAO Analysis

In todays West Australian.... might support the market for a little whiles yet???


Fund ready to invest, despite market concerns


17th June 2007, 11:00 WST
The $51 billion Future Fund will begin investing by the end of this financial year - only weeks away - regardless of concerns it may be entering at the top of the market.
The investment fund was established by the federal government in 2006 to meet Commonwealth government superannuation liabilities, estimated to hit $148 billion by 2020.
The fund is estimated to be worth more than $51 billion, with $42 billion in contributions from the government, and a little under $10 billion in Telstra shares.
The fund’s general manager Paul Costello said today the fund, which appointed Watson Wyatt head David Neal as its chief investment officer last week, was "on track" to achieve its plan of investing before the end of this financial year.
"We’ve always said that we will begin investing in this financial year, and of course that’s now only a couple of weeks away," Mr Costello told ABC TV.
"So that remains on track ... and that plan will be executed."
But asked if he was concerned the fund might be investing at the top of the market, which in the past few years has witnessed unprecedented gains, Mr Costello said, "I think that’s a concern for all investors".
"We’re absolutely clear that this is not a good time to be investing a large portfolio as a few years ago might have been, so we spend quite a bit of time thinking around that," he said.
"We know that there are many investors who have been punished for standing on the sidelines for too long waiting for corrections to happen which do take some time.
"Equally there have been investors who have been punished for jumping in to markets without being sensitive, so we are trying to run a middle road there."
Mr Costello was again forced to defend the appointment of US-based Northern Trust as the fund’s global custodian.
The appointment of an overseas bank raised concerns among unions and the federal opposition, not least because of its links to the collapse of US energy giant Enron.
"I think there was a great deal of comment made before people perhaps really understood what the role the custodian was, and appreciated that by definition a global custodian must be a global organisation, it must be a global bank,” he said.
"We remain absolutely convinced that this is the right call for us."
But the fact the Future Fund had become such a politically sensitive body would have no impact on the body’s independence, Mr Costello said.
"We value our independence,” he said.
"Government has been very clear with us - they believe the fund will only be successful if it feels free to make decisions that it believes are appropriate for the portfolio.
"The board is of the same view... We will continue to make the decisions that we think are best for the portfolio irrespective of comment that sometimes might flow."
Mr Costello said how the money would be spent would be decided by the government of the day - and was not an issue of concern for the fund.
Labor has promised, if it wins the upcoming election, to use $2.4 billion from the fund to help pay for a national high speed fibre-optic broadband network.
The policy has been condemned by the government as undermining the fund’s intent of meeting superannuation liabilities.
"Our job is to manage the contributions that are given, and government has been clear about what they expect back from that, so really these other issues are not ones that we spend a great deal of energy (on),” Mr Costello said.
AAP