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Showing posts with label Chart. Show all posts
Showing posts with label Chart. Show all posts

Nov 25, 2018

Debunking 8 Myths About Technical Analysis


Shobhit Seth


Some traders and investors denounce technical analysis as a superficial study of charts and patterns without any concrete, conclusive or profitable results. Others believe it is a sort of Holy Grail that once mastered will unleash sizable profits. These opposing viewpoints have led to misconceptions about technical analysis and how it is used. 
Some misconceptions about technical analysis are based on education and training. For example, a trader trained in using only fundamentals may not trust technical analysis at all. But that doesn't mean someone who is trained in technical analysis can't use it profitably. Other myths are based on experience. For example, the incorrect use of technical indicators often leads to losses. That doesn't mean the method is necessarily bad – possibly the person just needs more practice and training. Other myths are perpetrated by marketing, promising overnight riches if a simple indicator is bought and used. Rarely is it that easy. (For more, see: Basics of Technical Analysis.)

Technical Analysis Myths Debunked

Here are eight common technical analysis myths. Read opposing viewpoints on why these myths simply aren't true.

1.) Technical analysis is only for short-term trading or day trading. 

It is a common myth that technical analysis is only appropriate for short-term and computer-driven trading like day trading and high-frequency trades. Technical analysis existed and was practiced before computers were common, and some of the pioneers in technical analysis were long-term investors and traders, not day traders. Technical analysis is used by traders on all time frames, from 1-minute charts to weekly and monthly charts.

2.) Only individual traders use technical analysis. 

While individuals do use technical analysis, hedge funds and investment banks make ample use of technical analysis as well. Investment banks have dedicated trading teams that use technical analysis. High-frequency trading, which encompasses a significant amount of the trading volume on the stock exchanges, is heavily dependent on technical concepts.

3.) Technical analysis has a low success rate. 

A look at the list of successful market traders, who have decades of trading experience, debunks this myth. Successful trader interviews have cited significant numbers of traders who owe their success to technical analysis and patterns. For example, "Market Wizards: Interviews With Top Traders" by Jack D. Schwager cites many traders profiting solely from technical analysis. (See also: The Pioneers of Technical Analysis.)

4.) Technical analysis is quick and easy. 

The internet is full of technical analysis courses that promise trading success. Though many individuals enter the trading world by placing their first trade based on simple technical indicators, continued success in trading requires in-depth learning, practice, good money management and discipline. It requires dedicated time, knowledge and attention. Technical analysis is only a tool, only one piece of the puzzle.

5.) Ready-made technical analysis software can help traders make easy money. 

Unfortunately, this is not true. There are many online ads for cheap and costly software that claims to do all your analysis for you. In addition, less-experienced traders sometimes confuse technical analysis tools in broker-provided trading software for trading models that will guarantee profit. Though technical analysis software provides insights about trends and patterns, it doesn't necessarily guarantee profits. It's up to the trader to correctly interpret trends and data. (For additional reading, see: The Best Technical Analysis Trading Software.)

6.) Technical indicators can be applied across all markets.

While  this may be true in many cases, it is not true in all cases. Specific asset classes have specific requirements. Equities, futures, options, commodities and bonds all have differences. There may be time-dependent patterns like high volatility in futures and options nearing expiry, or seasonal patterns in commodities. Don't make the mistake of applying technical indicators intended for one asset class to another.

7.) Technical analysis can provide very accurate price predictions. 

Many novices expect recommendations from technical analysts or software patterns to be 100 percent accurate. For example, inexperienced traders may expect a prediction as specific as, "stock ABC will reach $62 in two months." However, experienced technical analysts usually avoid quoting prices so specifically. Rather they tend to quote a range such as, "stock A could move in the range of $59 to $64 in the next two to three months." Traders betting their money on technical recommendations should be aware that technical analysis provides a predictive range, not an exact number. Technical analysis is also about probability and likelihoods, not guarantees. If something works more often than not, even though it doesn't work all the time, it can still be very effective at generating profits.

8.) The winning rate in technical analysis should be higher. 

It's a common myth that a high percentage of winning trades is needed for profitability. However, that is not always the case. Assume Peter makes four winning trades out of five, while Molly makes one winning trade out of five. Who is more successful? Most people would say Peter, but we don't actually know until we get more information. Proper trade structuring allows for profitability even with few winners. Profitability is a combination of win-rate and risk/reward. If Peter makes $20 on his winners but loses $80 on this loss, he ends up with $0. If molly makes $50 on her win and losses $10 on her losses, she walks away with $10. She is better off, even with fewer wins.

The Bottom Line

Technical analysis provides a large basket of tools and concepts for trading. There are successful traders that don't use it, and there are successful traders that do. Ultimately, it is up to each trader to explore technical analysis and determine if it is right for them. It doesn't guarantee instant profits or 100 percent accuracy, but for those who diligently practice the concepts, it does provide a realistic possibility of trading success. (For additional reading, check out: Technical Analysis Strategies for Beginners.)

Source: Investopedia

Oct 28, 2018

Stocks Erase Yearly Gains as a Busy Week Approaches I Investopedia I Chart


Justin Kuepper


Stocks moved sharply lower last week after third quarter earnings failed to live up to investor expectations. According to FactSet, more than three-quarters of S&P 500 companies that reported third quarter earnings had positive earnings surprises, and more than half reported positive revenue surprises. However, most companies reported negative fourth quarter earnings guidance, which caused shares to move lower.
Tech stocks were especially hard hit amid concerns of a slowdown, with Amazon.com, Inc. (AMZN) and Alphabet Inc. (GOOGL) missing expectations. But even industrials giants like Caterpillar Inc. (CAT) and 3M Company (MMM) missed expectations. Many investors are wondering if the strong fundamentals seen earlier this year are starting to wane in recent months.
Next week, traders will be keeping a close eye on consumer confidence data on Oct. 30, ADP employment data on Oct. 31, ISM manufacturing index data on Nov. 1, and of course non-farm payrolls due out on Nov. 2. Investors will also be keeping a close eye on any new developments in the U.S.-China trade war that continues to take a toll on the market.

Broad Market Falls Sharply

Technical chart showing the performance of the S&P 500 SPDR ETF (SPY)
The S&P 500 SPDR ETF (SPY) shares fell 4.21% last week. Since breaking down from trendline support earlier this month, the index has fallen sharply to prior trendline support. Traders should watch for a breakdown from these levels to fresh lows or a rebound to retest the 200-day moving average at around $274.44. The relative strength index (RSI) appears oversold with a reading of 30.34, but the moving average convergence divergence (MACD) remains in a bearish downtrend that suggests further downside ahead.

Industrials Give Up Ground

Technical chart showing the performance of the Dow Jones Industrial Average ETF (DIA)
The Dow Jones Industrial Average ETF (DIA) shares fell 3.34% last week, making it the best performing major index. After breaking down from trendline support earlier this month, the index moved sharply lower to trendline and 200-day moving average support at around $249.54. Traders should watch for a rebound to retest S2 support at $252.63 or a breakdown lower to trendline support at around $239.00. The RSI appears moderately oversold at 35.05, but the MACD remains in a bearish downtrend.

Tech Stocks Move Lower

Technical chart showing the performance of the PowerShares QQQ Trust (QQQ)
The PowerShares QQQ Trust (QQQ) shares fell 4.23% last week, making it the worst performing major index. Since breaking down from key support earlier this month, the index moved sharply lower below the 200-day moving average. Traders should watch for a rebound above these levels to S2 support at $177.76 or a breakdown to fresh lows. Looking at technical indicators, the RSI appears slightly oversold at 36.28, but the MACD remains in a strong bearish downtrend.

Small Caps Continue Decline

Technical chart showing the performance of the iShares Russell 2000 Index ETF (IWM)
The iShares Russell 2000 Index ETF (IWM) shares fell 4.16% last week. After breaking down from key trendline support, the index has broken through key support levels to fresh lows. Traders should watch for a rebound to the 200-day moving average at around $160.16 or a breakdown lower to new lows over the coming week. The RSI appears very oversold with a reading of 27.98, but the MACD remains in a downtrend.
Charts courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.
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Oct 1, 2018

Intel Stock Prepares for Next Move After Breakout: Investopedia Chart


Justin Kuepper


Intel Corporation (INTC) shares fell more than 1% in early trading on Monday after breaking out from trendline resistance on Friday. Barclays downgraded the stock from Equal Weight to Underweight and lowered its price target to $38.00, citing market share losses and price cuts as Intel struggles to compete. Baird analysts also downgraded Advanced Micro Devices, Inc. (AMD), Intel's primary competitor, from Outperform to Neutral.
Intel shares rallied on Friday after the company issued an update on its 10-nanometer (10nm) development. Management noted that the company continues to advance its 10nm yields, and volume production is still expected next year. The delays for Intel had been a tailwind for AMD's stock, which moved lower on the news. (See also: Intel Hit With Another Downgrade on Production Issues.)
Technical chart showing the performance of Intel Corporation (INTC) stock
From a technical standpoint, Intel stock broke out from trendline and pivot point resistance levels at $46.59 to the 50-day moving average at $47.77 on Friday. The stock gave up ground on Monday morning amid the analyst downgrade, and the breakout is at risk. The relative strength index (RSI) appears neutral at 48.51, but the moving average convergence divergence (MACD) remains strong.
Traders should watch for a rebound from trendline and pivot point support levels to retest the 50-day moving average this week. The next two resistance levels to watch would be reaction highs and R1 and R2 resistance at $49.15 and $50.96, respectively. If the stock breaks down from this support, it could move back into its price channel to S1 support at $44.76. (For more, see: Why Intel's Stock May See a Massive Rebound.)
Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.

Sep 6, 2018

Facebook Stock in Bear Market on Senate Intel Grilling: Chart I Investopedia


Richard Suttmeier



Shares of social media giant Facebook, Inc. (FB) were solidly in bull market territory on July 25 until after the closing bell, when the company missed earnings estimates. This resulted in a three-day bear market crash of 23.8% from the all-time intraday high of $218.62 set on July 25 to the low of $166.56 set on July 30.
This volatile journey began on March 19, when Facebook confessed that Cambridge Analytica, a data analysis company, accessed data on some 50 million Facebook users. Facebook knew for a long time of this violation of the company's terms of use, but when it became publicly known on March 19, the stock took a hit. (See also: Facebook Suspends a Cambridge Analytica-Like App.)
Since the news was just before the end of the first quarter, the adverse effects on first quarter earnings did not hurt the bottom line. The stock set its 2018 low or $149.02 on March 26 and returned to its annual pivot of $162.65 on March 27. This magnet stayed in play as a buying opportunity until April 25, when first quarter earnings beat expectations. The Facebook bulls proclaimed that the stock was not hurt by the data scandal and that Facebook shares were on a new momentum run-up. This put the stock at its all-time intraday high as second quarter earnings were released on July 25.
When I profiled Facebook ahead of earnings, I warned that the stock had become an "inflating parabolic bubble," which I always view as a technical warning. This signal occurs when the weekly slow stochastic reading moves above 90.00 on a scale of 00.00 to 100.00. Missing second quarter earnings after the close on July 25 was the catalyst that completed the circle from parabolic bubble to bear market in just three days.
This week, shares of Facebook began to decline further on difficult testimony and questioning concerning social media privacy and security before a Senate committee. This morning, the stock slipped closer to my annual value level of $162.65. (For more, see: Facebook, Twitter Face U.S. Congress Over Politics and the Internet.)
The daily chart for Facebook
Daily technical chart showing the performance of Facebook, Inc. (FB) stockCourtesy of MetaStock Xenith
Facebook is well below its 50-day and 200-day simple moving averages at $187.43 and $181.46, respectively. The lowest horizontal line is my annual value level of $162.65. The horizontal line just below the 200-day simple moving average is my monthly risky level for September at $180.68. Note the price gaps lower on March 19 and on July 26.
The weekly chart for Facebook
Weekly technical chart showing the performance of Facebook, Inc. (FB) stockCourtesy of MetaStock Xenith
The weekly chart for Facebook is negative, with the stock below its five-week modified moving average of $178.65. The stock is well above its 200-week simple moving average at $130.13, or the "reversion to the mean," which has never been tested for shares of Facebook. The 12 x 3 x 3 weekly slow stochastic reading is projected to decline to 22.58 this week, down from 27.90 on Aug. 31.
Given these charts, investors should buy Facebook shares on weakness to my annual value level of $162.65 and reduce holdings on strength to my monthly risky level of $180.68. (For additional reading, check out: Facebook App Loses a Quarter of Americans.)
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Aug 15, 2018

Retail Stocks Hit New Highs: Chart I Investopedia


JC Parets


The SPDR S&P Retail Sector ETF (XRT) just made new all-time daily closing highs. I was going to write an extensive piece on how we got here and the lessons we can take away about knowing what we own and exercising professional skepticism when we hear gross generalizations like "retail is dying," but I don't think I even need to make it that complicated.
Here's the example we typically hear from the journalists and analysts that are making the bearish retail case. Since 2007, Amazon.com, Inc. (AMZN) is up 5,170%, and J. C. Penney Company, Inc. (JCP) is down 97.5%. So that's it. Case closed. Traditional retail is dead, so go out and buy Amazon and short the rest of the sector. Right? (See also: Amazon Captures 5% of All Retail Spending: Bloomberg.)
Technical charts showing the performance of Amazon.com, Inc. (AMZN) and J. C. Penney Company, Inc. (JCP) stock
Well, if it were that simple, then the equal-weighted  SPDR S&P Retail Sector ETF wouldn't be breaking out of a three-year base to new all-time daily closing highs.
Technical chart showing the performance of the SPDR S&P Retail Sector ETF (XRT)
[If you'd like to learn more about the tools that can help you succeed as a trader, check out my Technical Analysis course on the Investopedia Academy, which includes real-world examples and over five hours of video content.]
So what is the retail sector composed of exactly? A quick look at the fund allocation shows that there are 10 different industries represented here, and department stores like J. C. Penney are only 5.75% of the weighting.

So what's my point? The index has 88 individual holdings, and since the bottom on Aug. 21, 2017, the average stock is up approximately 53.5% and the median is up roughly 39.50%, while 16 of the holdings more than doubled over that period. There were also 44 stocks that underperformed XRT and 14 stocks that were down over this period, so there was opportunity for stock pickers on both sides of the tape – you just had to look. Yes, there are industries that are struggling within the retail sector, but there also others that are thriving. However, that's not unique to retail – there are leaders and laggards in every market at all times. (For more, see: 4 Retail Stocks Shattering Records Despite Amazon Threat.)
Components of the SPDR S&P Retail Sector ETF (XRT)

The Bottom Line

When it comes to market narratives, it's important to exercise professional skepticism and validate the claims being made by doing the work on your own. Quick soundbites might make you sound smart, but they rarely make you any money, which is why we're all here. So the next time you hear something that just doesn't sound right, I'd encourage you to do the work yourself, as there's likely an opportunity to take advantage of others' ignorance and/or laziness.
If you enjoyed this post, consider joining the All Star Charts community by starting a 30-day risk-free trial or signing up for our "Free Chart of the Week".
Thanks for reading, and let us know if you have any questions!
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Aug 13, 2018

Mall Anchors Riding Bullish Wave Into Earnings I Chart I Investopedia


Alan Farley


Major department stores are set to report quarterly earnings in the next two weeks, providing a much needed update on a retail recovery wave that has lifted the group to two- and three-year highs. A strong U.S. economy, major belt-tightening and innovative online strategies have improved margins, ending a brutal bear market triggered by the exodus out of brick-and-mortar sales into e-commerce.
Still, there are reasons to be skeptical about this group's long-term outlook. Amazon.com, Inc. (AMZN) and other internet-based retailers continue to take market share, while the department stores' operations are highly dependent on foreign production, exposing them to shrinking margins if their goods wind up on tariff lists. In addition, rising customer debt and low wage increases could eventually take their toll, shrinking retail sales and sending these issues back to their lows. (See also: Amazon Captures 5% of All Retail Spending: Bloomberg.)
Macy's, Inc (M) reports earnings in Wednesday's pre-market. The stock completed a round trip into the 2007 high at $46.70 in 2013 and broke out, hitting an all-time high at $73.61 in July 2015. The subsequent decline failed the breakout four months later, generating aggressive selling pressure that ended at a seven-year low in the upper teens in November 2017. It has carved three rally waves since that time, stalling at the .382 Fibonacci sell-off retracement level in the upper $30s in June 2018.
Price action into August has carved a narrow consolidation that may complete a small-scale cup and handle breakout in reaction to a bullish earnings report. In turn, that could lift the stock into the .50 retracement level in the mid-$40s, generating a third test at the failed breakout level (blue lines). Mounting that barrier will take exceptionally strong buying power, suggesting that timing-conscious shareholders use the advance to take profits. (For more, see: Macy's Seen Rising 12% Despite Weak Profit Forecasts.)
Dillard's Inc. (DDS) reports earnings after Tuesday's closing bell. The stock topped out at $40.56 in 2007 and plunged during the 2008 economic collapse, dropping to $2.50. It returned to the prior high in 2011 and broke out, entering a powerful trend advance that posted an all-time high at $144.21 in April 2015. It then sold off with other mall anchors, finally bottoming out in the mid-$40s in May 2017.
A breakout above a two-year bowl-shaped pattern (blue line) reached the .50 retracement of the 2015 into 2017 downtrend in the upper $80s in June, triggering a reversal that failed the breakout in July. However, it is now trading near resistance at $88.50 and could reinstate the breakout with a strong earnings report. Traders should look for a rapid advance to triple digits if that happens, while a sell-the-news reaction could signal the end of the 15-month uptrend.
Kohl's Corporation (KSS) reports earnings on Aug. 21. A multi-year uptrend ended at 2002 resistance in the upper $70s in 2007, giving way to a steep decline that hit a 10-year low in the mid-$20s in 2008. It took more than six years for the stock to complete a round trip into long-term resistance, triggering a 2015 reversal and downtrend that found support in the low $30s in the second quarter of 2016. It tested that level one year later, completing a double bottom reversal.
The uptrend into 2018 reached 2002, 2007 and 2015 resistance in June 2017, generating a downturn that found support at the 50-day exponential moving average (EMA). It is now trading about five points under resistance and could reach that level quickly following a bullish report. In turn, that price action would complete a multi-decade inverse head and shoulders pattern, raising the odds for a long-term breakout that reaches the $120s in the next two or three years. (See also: 6 Retail Stocks to Lead as Economy Picks Up Speed.)

The Bottom Line

Mall anchors have carved bullish patterns heading into quarterly earnings but need to report strong metrics to mount overhead supply generated by multi-year downtrends. (For additional reading, check out: Retail Stores Aren't Dead in Amazon Era: Moody's.)

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    Intel shares have steadily recovered from their late July lows, but traders will be closely watching these levels ahead.
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