technical analysis

The Coppock applied to the current market

Consider the chart of the All Ords Index. In about July of 2016 a positive Coppock signal was given (shown below by the green arrow). This indicated that investors should be starting to buy stocks. It is worth looking at charts of the major stocks to note that most stocks started strong positive moves at about that time.

What perhaps makes the July Coppock signal more persuasive is that a Coppock entry signal was evident at about the same time during 2016 for almost every major world index. One of the very few exceptions was the Nasdaq index where because of the very bullish nature of that index, the Coppock failed to move below the zero line.

The recent widespread occurrence of the Coppock signal might suggest that there is a high probability that all world markets will be positive this year. But that is a matter of probability and… Continue reading

The Coppock indicator and the Australian market.

The Coppock indicator is a long-term momentum oscillator based on rate of change. It was developed to identify long-term investment opportunities in the S&P 500 and Dow Industrials indices. The signal is very simple. A buying opportunity is identified when the Coppock indicator is negative and becomes more positive (but crossing the zero line is not an entry signal).

From looking at many charts, it is evident that there is little difference in subsequent movement of the index whether there is a deep or a very shallow Coppock trough. The Coppock is a lagging indicator and the signal is very general and often several months late. A more precise entry signal is provided by a monthly MACD crossover but this signal is usually later still than the Coppock.How useful is the Coppock signal? The monthly chart of the All Ords Index below, shows that there were nine Coppock entry… Continue reading

Using both Fundamental Analysis and Technical Analysis

Fundamental analysis and technical analysis are the two valuable tools available to the investor. Technical analysis is now well established as a technique and yet there remains a bias against it despite ample evidence for its value as an investment tool. In my experience to get the best result as an investor needs to take advantage of both fundamental analysis and technical analysis.

An important application of technical analysis is its use in timing the market. There are two components to timing the market.

  • To control market risk. Which simply means that an investor avoids buying stocks in a bear market or during a market correction.
  • To control specific risk. Specific risk refers to the risk associated with a specific stock. If an investor uses technical analysis to avoid buying stocks which are in a downtrend, then specific risk is significantly reduced.

Perhaps one reason that investors do not use… Continue reading

Telstra share price could fall significantly.

Telstra has been the darling of investors for 5 years but it may well be about to lose its attraction if the technical pattern evident in the chart of Telstra is any indication.

Technical analysis is a very useful analytical tool and some patterns and indicators offer a high probability in predicting price movements. Take the flag pattern for example. The flag pattern is a continuation pattern that is characterised by a sideways movement forming a channel within a trend. The trend leading up to the flag is termed the flag pole and the length of this flag pole can then be used to project a minimum target for the pattern.

Consider the weekly chart of the Commonwealth Bank below. In October 2008 at a public meeting of investors I noted that the bearish flag pattern on the CBA chart was very well developed and that it projected a future… Continue reading

World markets are likely to fall but China is the key.

Although the decision of the Fed not to raise interest rates has at least temporarily removed a variable from the markets, volatility in world equity markets can be expected to continue. Of the several remaining very significant unknowns which contribute to this volatility the most important one is China.

China has recently had four interest rate cuts and reduced the reserve-ratio requirement. These measures and others which in effect reduce financing costs for local government authorities, have created conditions that exacerbate the debt situation and potentially increase the risks of instability in the Chinese financial system.

Easy money conditions were a major contributor to the Chinese stock market boom and as a result retail investors are now the biggest contributors to the national debt. The Chinese debt is now about US$25 trillion and is estimated to be close to 250% of GDP. In fact the rate of growth of debt… Continue reading

Beware of the bull trap – is this a repeat of 2008?

The market volatility over the past week has been extraordinary. In a world of low interest rates the equity markets provide one of the few places to achieve a reasonable return so the bargain hunting which has emerged over the past few days is understandable.

No doubt volatility will continue and given the number of negative economic influences world-wide I would suggest that we are witnessing a bull trap with a high probability that the market will move much lower. In fact the market gyrations of the past week are reminiscent of the early part of the 2008 bear market.

Consider the daily chart of the S&P500 which fell 12% from its high over a period of a month. From the chart a likely scenario is a recovery to the 50% Fibonacci level at about 2000 (marked in red) before the bear market develops. The VIX has spiked and remains… Continue reading

Does timing the market matter?

Timing the market seems to be a controversial subject among investors but there should be no need for debate. Fund managers claim that to be profitable, you cannot time the market. It is in their interest that investors leave their funds with the fund manager who collects high fees whatever the market condition and however poor the performance. So of course the fund manager will say that the market cannot be timed and they hope to perpetuate the myth.

But timing the market does matter.   Consider the monthly chart of the ASX200 below. If an investor had put funds into the market at the end of 2007, within a year the loss would have amounted to more than 50%. By contrast had the investment been made in March of 2009 a substantial profit was made over subsequent years, so timing the market is of great importance. There is… Continue reading

Is this a time to buy equities?

Has the Australian market reached an apparent bottom and is this the time to buy? The bull market in the United States remains intact at a time when the Australian market has been weak over past months. There is a lot of cash sitting on the sidelines and low interest rates make equities one of the few attractive investments. When an investor is trying to decide whether to enter the market emotion is always a factor and fundamental analysis often provides little help but technical analysis can be very useful.   Consider the following charts of the ASX200.

The weekly chart of the ASX200 below shows that the down trend is still intact and the 10/30eMA crossover contributes to a very bearish chart. There is support at the 5400 level going back nearly 10 years suggesting a possible bottom but the RSI remains negative.   Technically the weekly… Continue reading

The knowns and the unknowns – Objectivity is essential

This is indeed a time of volatility and uncertainty for investors and a time to be objective about investing decisions. Let’s face it, there are some current economic issues that are known, some that have a probability of occurring and some that are completely unknown.   The unknowns are beyond us but as investors we must be able take into account those factors which are known and make allowance for those that do have a probability of occurring. These variables can be factored into our investment plan and determine how we should be investing in this current environment?

The following knowns seem almost certain to continue over the next few years. These include the continuation of low interest rates, very low inflation rates, quantitative easing, high sovereign debt levels and a continuation and escalation of Middle East conflicts.

The following high probability events can be expected to occur over… Continue reading

Are there bargains in this market?

Most commentators remain bullish on shares and the corrective moves in the Australian market over the past few weeks are offering good quality stocks which have fallen in price by some 10% over the past month and look like bargains, but are they?

The question is whether this is the time to buy these “bargains”? In a market which is undergoing a correction, fundamentals provide no indication of when to buy, they simply show the investor which stocks are quality businesses. On the other hand technical analysis provides the tool to time the entry to these stocks and at this time technical analysis suggests that this market remains uncertain and it is too early to buy.

With stocks, a general approach is to buy only when the market is rising, as indicated for example, by the weekly close of the ASX200 above the 30 period moving average (eMA). This approach… Continue reading

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