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XAO Technical Analysis

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Re: XAO Analysis

Shortish term picture I'm looking at a H&S appearing, target 6500 ish.

Awaiting further price action. Early days.

All those lagging indicators are starting to look very interesting.
 

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Re: XAO Analysis

Vert,
Proportion or "look" are very important to the interpretation. Note the chart below shows the adjacent corrections to be out of proportion. As such the "safest" interpretation is that we're yet to see the wave-iv, although we're more than likely in it now

abcuc4.png


Its important to build a case, pattern by pattern. Firstly, the move off the major highs was a clear 3-wave with equality. Secondly the rejection off last weeks lows has been very powerful, not only the blow-off seen on Thursday itself but the follow through since. Thirdly, the fact that we've moved beyond the 61.8% retracement of the complete decline confirms a corrective structure and not an impulse and in turn flips the momentum from down to up. It does not mean that we can't keep going lower in a much larger corrective move but there is more evidence on this lower time frame suggesting we're impulsing higher. That may not be a new wave-1 higher. It could be a wave-A of a larger corrective move than would still probably see new highs made.
 
Re: XAO Analysis

Mkts trend ...........Mkts reverse

Sentiment is important in recognizing technical positions

trends culminate with one sided sentiment and a uniformity of trading methods

nothing succeeds like success until it doesn't

With everyone long the same stocks
It is No mystery what gets sold down


Sentiment can be measured by various indicators

Best to look past the behaviour of cap weighted indexes or proxies
and examine whole mkt behaviour

Here is a total mkt 2% bullish percent chart............

The software plots every stock on the ASX as a 2% x 3 P&F chart

Then plots the % that are on a simple P&F buy signal as a 1 x 3 P&F chart

That will oscillate between 0 and a 100

with 30%, 50% and 70% important levels

Also relevant is the P&F buy and sell signals themselves..
( Any reassertion on a P&F chart should not be ignored )


Bull Confirmed - Bull confirmed is, just as it sounds, the most bullish signal the index emits, giving traders a green light to take on multiple long positions with confidence. In the bull confirmed phase, the Bullish Percent Index has a column of X's on its right edge, and this column must have surpassed the next column of X's over to the left by at least one square. Since a market that is in bull confirmed mode is upwardly trending, directional indicators such as MACD are more appropriate than oscillators during this phase.

Bear Confirmed - Again, just as it sounds, the bear confirmed phase is the most bearish signal the index gives. In this mode, the Bullish Percent Index has a column of 0's on the far right edge of the chart, and this column must surpass the next column of 0's to the left by at least one square down. Since a market in the bear confirmed mode is trending downward, only short positions should be considered during it, and directional indicators are again the weapons of choice.

Bull Correction - The bull correction mode, following only a bull confirmed phase, is a sideways market or a market experiencing a correction after a bull confirmed phase. The chart features a column of 0's on the right edge that has yet to pass the last 0's column. Long positions should be taken with caution because a bull correction can reverse into a bear confirmed. During the bull correction mode, look to oscillators like stochastic for insight into timing trades.

Bear Correction - A market in the bear correction phase, following only a bear confirmed phase, is also a sideways market, and it is experiencing a correction from bear confirmed. A bear correction features a column of X's on the right edge of the chart that fails to surpass the last column of X's. Again, use short positions with caution, and use oscillators instead of directional indicators with the charts.

Bull Alert - The final two phases of the Bullish Percent Index involve overbought or oversold conditions. On the Bullish Percent chart, readings above 70% are considered overbought, and readings below 30% are considered oversold. The bull alert phase is simply a reversal into a new column of X's from below 30% on the chart, and it indicates that the index is oversold and due for a bounce. As soon as the index signals a bull alert, traders can take long positions with caution until the X's cross back above the 30% line.
Bear Alert - A bear alert is simply the opposite of a bull alert, except to signal a Bear Alert, the index must be crossing below the 70% line with a column of 0's. It is important to remember that for a bear alert to signal, the column of 0's must actually cross back below the 70% line. During a bear alert the market is overbought and due for a sell-off. Take short positions with caution until the market reverts back to bull confirmed. During Alert phases it is a good idea to take quick profits (10-15%) because there is a good chance the market will reverse.
Click to expand...


Crossing of the 50% line is also a very important indication ...........


I think if You integrate this with an Index chart and esp look for confirmation from Volume ( Where is the following .. With the buying or the selling )... You have a useful map delineating where We are in regards to sentiment...

The real test will come when mkts head down again...

motorway
 

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Re: XAO Analysis

This material should be relevant to some of the issues discussed a few pages ago in relation to financial markets and socioeconomics. fwiw I tend to follow the general logic of EW and wavepicker's comments about the significance of news (cf the volume analysis techniques discussed by Wyckoff and Tom Williams which provide estimates of price moves before the headlines are even published). If there is sufficient discussion we can split these posts into a new thread. I don't have access to the full article yet (referred to below) to attach it here but I would say it's worth reading in its entirety.

The herd's suffering mood swings again
By Ross Gittins
SMH August 25, 2007
http://www.smh.com.au/news/business...1187462526662.html?page=fullpage#contentSwap1

Economists don't like to think about it but, according to conventional theory, events such as the present wild gyrations in financial markets aren't supposed to happen.

That theory says share prices move only when investors quietly incorporate new information about the prospects of their investments, whereas it's clear the markets are swinging between blind panic and the thought that maybe it's just a great buying opportunity. The herd can't decide which way to run.

How would you feel if you walked into a shoe shop and the manager rushed up and told you to buy extra shoes because prices had skyrocketed? Or if nervous customers warned you not to buy any socks because sock prices had fallen by half? You'd feel that both the manager and his customers had taken leave of their senses. Yet that's the kind of logic we see in financial markets all the time: people buying shares because their price is rising and selling shares because their price is falling.

We've been witnessing sharemarkets around the world doing both those things in recent days - sometimes both on the same day.

The thing to note is that both those reactions fly in the face of the laws of supply and demand. According to them, people buy less when the price rises and more when it falls.

So what on earth is going wrong? Well, according to an article by Robert Prechter and Wayne Parker, published in The Journal of Behavioural Finance (abstract below), the explanation's surprisingly simple: economists are mistaken in their assumption that the markets for financial assets such as shares work the same way as the markets for ordinary goods and services.

That's because ordinary goods markets are subject to the laws of supply and demand, but financial asset markets aren't. Rather, financial asset markets are subject to "the socionomic law of patterned herding". In a market for goods and services, you have producers on the supply side and consumers on the demand side. When prices rise, the producers are happy to supply more of the item; when prices fall, they're willing to supply less.

For consumers, however, it works the other way: they want to buy more when the price falls and less when it rises.

The conflicting desires of producers and consumers create a dynamic balance, arbitrated by price. The price will adjust until the amount producers wish to supply exactly equals the amount consumers are willing to demand. By this mechanism, the market reaches "equilibrium" (balance).

But, Prechter and Parker argue, the markets for shares and other financial assets don't work that way. That's because you don't really have any producers in the market.

The supply of shares is increased when a new company floats on the stock exchange or when an existing company makes a new share issue. But these are comparatively rare events. The vast majority of share trades involve the exchange of existing, second-hand shares.

So, for practical purposes, there's no supply side in financial asset markets, just a demand side. You've got demanders who want to buy and demanders who want to sell. And the same person can be buying one day and selling the next.

"Without the governing influence of the law of supply and demand deriving from the conflicting purposes of producers and consumers, financial prices are free to rise or fall wherever investors' aggregate impulses take them," Prechter and Parker say.

The result is not equilibrium but unceasing dynamism. In other words, this is why share prices are so volatile.

The next big difference between goods markets and financial asset markets is uncertainty about current values. When a consumer (or even a producer) is buying an orange, a washing machine or a haircut, it isn't hard to decide what it's worth to you and whether you're prepared to pay the asking price.

When you invest in a share, however, it's much harder to know whether the price you're paying is an attractive one and whether you're likely to be able sell the share for a good profit at some time in the future. When you buy goods or a service, you only have to decide what it's worth to you, right now. But when you buy a share, you have to decide what it will be worth to someone else some time in the future.

So there's far more uncertainty associated with sharemarkets and share prices - contrary to the assumption of conventional economics and its "efficient market hypothesis".

Our proponents of this "socionomic theory of finance" argue that in making decisions about goods and services, where certainty is the norm, people use conscious reasoning. But in financial markets, where uncertainty is pervasive, people resort to herd behaviour.

Herding is an unconscious, impulsive behaviour developed and maintained through evolution. Its purpose is to increase the chance of survival.

When humans don't know what to do, they are impelled to act as if others know. Because sometimes others actually do know, herding increases the overall probability of survival.

"Unfortunately, when investors in a modern financial setting look to the herd for guidance, they do not realise that most others in the herd are just as uninformed, ignorant and uncertain as they are," the authors say.

Buyers in a rising market appear unconsciously to think, "the herd must know where the food is - so run with the herd and you'll prosper". Sellers in a falling market appear to think, "the herd must know there's a lion racing towards us, so run with the herd or you'll die".

To the individual investor, straying from the group induces feelings of danger and unease, whereas herding induces feelings of safety and wellbeing.

Because herds are ruled by the majority, trends in financial markets appear to be based on little more than investors' moods.

These moods, which are generated "endogenously" (that is, by factors within the system, not outside developments) and shared via the herding impulse, motivate changes in overall sharemarket prices.

Moods are the basis on which investors judge the way they expect other investors to value shares in the future, so they motivate current buying and selling. Thus in markets for financial assets there's no tendency to "revert to the mean" of equilibrium.

There are just the ceaseless waves of social mood, fluctuating between optimism and pessimism.
-----------------

Abstract
Journal of Behavioral Finance
2007, Vol. 8, No. 2, Pages 84-108
(doi:10.1080/15427560701381028)

The Financial/Economic Dichotomy in Social Behavioral Dynamics: The Socionomic Perspective

Robert R. Prechter Jr. Socionomics Institute, Gainesville, Georgia
Wayne D. Parker Socionomics Foundation, Gainesville, Georgia

Neoclassical economics does not offer a useful model of finance, because economic and financial behavior have different motivational dynamics. The law of supply and demand operates among rational valuers to produce equilibrium in the marketplace for utilitarian goods and services. The efficient market hypothesis (EMH) is a related model applied to financial markets. The socionomic theory of finance (STF) posits that contextual differences between economics and finance produce different behavior, so that in finance the law of supply and demand is irrelevant, and EMH is inappropriate. In finance, uncertainty about valuations by other homogeneous agents induces unconscious, non-rational herding, which follows endogenously regulated fluctuations in social mood, which in turn determine financial fluctuations. This dynamic produces non-mean-reverting dynamism in financial markets, not equilibrium.
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Re: XAO Analysis

Unfortunately, when investors in a modern financial setting look to the herd for guidance, they do not realise that most others in the herd are just as uninformed, ignorant and uncertain as they are," the authors say.

Buyers in a rising market appear unconsciously to think, "the herd must know where the food is - so run with the herd and you'll prosper". Sellers in a falling market appear to think, "the herd must know there's a lion racing towards us, so run with the herd or you'll die".

To the individual investor, straying from the group induces feelings of danger and unease, whereas herding induces feelings of safety and well being.

Because herds are ruled by the majority, trends in financial markets appear to be based on little more than investors' moods.
Click to expand...


LeBON and CROWD BEHAVIOR
Mass Psychology
As a stock market operator, you must keep your own counsel. It is vital that you not become swept in by the emotions of the crowd.
There is a tremendous underlying tendency toward convergence and conformity on Wall Street. Current appraisals of the market, estimations of the future, favorite industrial groups and their major stocks all reflect moves toward consensus. This is a mindless conformity in as much as the crowd usually exaggerates a trend and in the end under performs the market averages.
Mindlessness is one of the hallmarks of crowd think. Singularly a group of investors may be rational businessmen, lawyers, doctors, and Indian Chiefs. Thrown together as members of a group seeking profit on Wall Street, there will arise an unconscious “group-think”; they share rising and sinking feelings with the tape; they are attracted to the same stocks at the same time and are apt to sell them in unison.
“The gathering has thus become what, in the absence of a better expression, I will call an organized crowd, or, if the term is considered preferable, a psychological crowd. It forms a single being, and is subjected to the law of the mental unity of crowds.” (LeBon, The Crowd)
The substitution of the unconscious action of crowds for the conscious activity of individuals is one of the principal characteristics of the present age.”
“We see, then , that the disappearance of the conscious personality, the predominance of the unconscious personality, the turning by means of suggestions and contagion of feelings and ideas in an identical direction, the tendency immediately to transform suggested ideas into acts; these we see, are the principal characteristics of the individual forming part of a crowd. He is no longer himself, but has become an automaton who has eased to be guided by his will.” (Le Bon, The Crowd)

Gustav LeBon. The Crowd. Mariette, Georgia. Cherokee Publishing Company. 1982. First published, 1895.
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On the significance of a below 30% on the Bullish percent chart

For a basic market strategy, think of the play moving from one end-zone to the other corresponding to the levels of the bullish %:

The Low risk area is below 30%

Almost everyone who wants to sell has already sold.( But Only) Once the “play” starts moving up from this area (indicated by reversals on the p&f chart of the bullish %) it is then time to start playing offense i.e. aggressively buy stocks, attempting ( intelligent) bottom-fishing in stocks off lows.
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Now intelligently means .... Not while a down trend is still in play..

(Catching a falling knife Vs picking up a (finished) fallen one cheaply)

In Wyckoff Terms We

Must have a combination of stopping volume that stops the downtrend that
Not just creates a pause in the downtrend... And better to wait for the secondary test to confirm that the stopping volume was in fact a selling climax.. (climax = ending action)

On this chart of the DOW ..Clear stopping Volume.. But still in a downtrend
Hence a shorter term traders entry only..

I can not say Selling Climax

The supply line has not been negated...

By Comparison

Charts of Aussie indexes do show similar supply lines that have be negated.
successful test would set up major buy points.
Same with many stocks...

Until a successful test.... All unconfirmed
and those supply lines could get reset or realigned...

Smart(er) money's intent is revealed in the Volumes
because they first have to buy or sell.

motorway
 

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Re: XAO Analysis

Looking at that chart of the DOW above is the low volume on the attempt at a trend reversal anything to be concerned about?
 
Re: XAO Analysis

Lusk,
In the near term it may be a concern because it suggests "lack of supply" rather than "demand". However, the background has clear bullish demand which remains the over riding factor. It may be retested on low volume, which would be a very bullish proposition.
 
Re: XAO Analysis

lusk said:
Looking at that chart of the DOW above is the low volume on the attempt at a trend reversal anything to be concerned about?
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Any buying must be at higher prices as sellers were exhausted into the lows...lack of supply.
 
Re: XAO Analysis

The Volume in our market the last week has not been as pathetic as in the States. As far as the direction of the next move it could be huge. We have nearly 500,000 contracts open on the SPI, this is a LOT. It has been around 300,000 all year and more like 250,000 all of last year. We got no selling out by the longs during the last two weeks and no net short covering, both sides seem to still be pretty confidant of their chances. This could really ad a lot of power to the next move. To unwind this you would think it will have a big influence on the XJO/XAO. The same seems to have happened in the S& P 500 futures in the States. So I still expecting a lot more volatility from here. Maybe not this week but we will have one side trapped soon rather than later.
 

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Re: XAO Analysis

lusk said:
Looking at that chart of the DOW above is the low volume on the attempt at a trend reversal anything to be concerned about?
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I note Nicks comment..

If the last bar is a lack of supply.. The the previous bars with the closes in the middle, 5 of them, are absorption and there as been a test on a shorter time frame...

Those bars do qualify for absorption.. There was supply ( closes in the middle ) but price held and moved up (Higher lows ) through that supply
and the last bar shows strength..
However on this time scale... The volume is lower on this last bar. Which in the context of the position in the trend ( approaching the supply line ) is also suggesting some faltering in demand..

Very important to watch the range of the next bars and look out for any shortening of the thrust....

If We have had absorption.. Then then overhead resistance should be decreased and We should see no shortening but ease of movement instead..

A lot depends on Your time frame..

motorway
 
Re: XAO Analysis

We all know that the recent meltdown was not your every day correction but have a look at this chart. The amount of stocks hitting 6 month lows was the Largest that I have data for (back to 02).
 

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Re: XAO Analysis

motorway said:
I note Nicks comment..
If the last bar is a lack of supply..
~~
However on this time scale... The volume is lower on this last bar. Which in the context of the position in the trend ( approaching the supply line ) is also suggesting some faltering in demand..
motorway
Click to expand...

Nice post MW. I find comments on this last bar on your chart interesting as I try to learn of the VSA way of reading charts. Close above open, close above yesterdays close, close near the days high, you can't get much more of a demand bar than that! But what to make of the low volume? Was it lack of supply or lack of demand? If it was not for Nicks comment I would have been sure it was lack of demand, it is a demand bar after all and the reduced volume could be fewer buys willing to pay the higher price.

Either way the chart needs a high volume day to confirm the up move, which looks like it could be mostly over by the time it's confirmed.
 
Re: XAO Analysis

My amateur options for XAO in the coming weeks, broadly speaking.

Subject to a war or hurricane here or there.
 

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Re: XAO Analysis

Allowing that all trend-lines etc are only vindicators, they sometimes fall in interesting places...
Cheers
..Kauri
 

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