Chartists Forum

Investments, gold, currencies, surviving after a financial meltdown
richard5za
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Chartists Forum

Post by richard5za »

The suggested purpose of a “Chartist’s Forum” is simply for people with an interest in technical investment analysis to share views. So here goes:

On December 3 data I have the Dow with a strong RSI buy divergence. I have the critical level at 8900 and a move back above this will trigger a solid rally. In fact, I expect to see a Christmas, or early 2009, bounce to test the 10 000 level. But I continue to rate this as a very serious bear market down below 6000, or even below 3000. So this is a rally in a bear market and not a return to bull market status.

Platinum has an RSI buy divergence and has been trading in a tight range for the past month. A break above $880 is required for the breakout into a new bull phase.

Crude Oil continues to drift in price, but the RSI is becoming very pronounced. This commodity is massively oversold. The reasons for this are not clear to me, perhaps continued forced selling by hedge funds, but the “technicals” are pointing to a rally. Whether Oil will resume its bull market status remains to be seen.

Other chartist views greatly appreciated.
Richard

freddyv
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Re: Chartists Forum

Post by freddyv »

richard5za wrote:On December 3 data I have the Dow with a strong RSI buy divergence.
Good idea for a forum.

Can you explain what "RSI buy divergence" means?

--Fred

John
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Re: Chartists Forum

Post by John »

I'm looking forward to seeing some of these charts.

John

isaac
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Re: Chartists Forum

Post by isaac »

Over on urbansurvival.com the wacky George Ure gives chartist chatter a nod and says that we are in a classic Elliot wave pattern, which predicts the market will rise to 9200 or so then drop rapidly to 5800. I think that the market went up yesterday because there are a lot of chartists out there and they make the technical moves a self fulfilling prophesy in the short term. Fundamentals dictate medium and long term movements, but charts dictate minute to minute and day to day movements. I think its an example of the nihlisim that John is always talking about. Short term investors don't care at all about what the companies do, there balance sheets, or any external realities except just market statistics.

richard5za
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Location: South Africa

Re: Chartists Forum

Post by richard5za »

PURPOSE OF CHARTING
The whole purpose of charting is to gain insight into future activity in the short and medium term.

As I have said elsewhere on this site, investors behave irrationally much of the time in the short to medium term, but not so in long term.

In the long term investor behaviour is highly rational.

If you take the Dow for the last 100 years, and do a bit of maths, and find the economic stats to which the Dow correlates most highly, you will find high P/E ratios in times of low positive inflation, and low P/E ratios in times of high inflation and in times of deflation.
Predicting the longer term is much, much easier than predicting the short term.

Going forward from 2008 there will either be deflation, or high inflation, so in the longer term P/E ratios will be low. So expect a much lower Dow in the longer term. Certainly below 5000 and perhaps as low as 1500. (A Dow of 1500 represents a 40% drop in earnings from current levels and a P/E ratio of 6. Have a look historically and you will see that this is not a crazy forecast!)

In the short term, and without some sort of guidance on the ebbs and flows of irrational investor behaviour, its anyone's guess what may happen. You can flip a coin or find some maths that are more predictive than flipping a coin.

My charts are not infallible, but are not that bad at forecasting. They are suggesting that in the short to medium term there will be a rally in the Dow, and precious metals, and possibly a weaker dollar and a higher oil price. This is simply the current underlying momentum of irrational investors.
Richard

StilesBC
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Re: Chartists Forum

Post by StilesBC »

I follow Elliott Wave also, and have some of the same feelings about the next few months. The US stock market doesn't look like it is finished with it's recent wave down, but most foreign markets, the bond market (treasuries) and currency markets suggest it's time for a multi-month rally.

I like the Elliott principle because it does the best of portraying price movements as nothing more than a collection of investor (and trading) psychology. That is what technical analysis is - a reflection of psychology. And that is why it works. When psychology reaches one extreme, the markets [i]usually[/i] start going the other way.

Most technicians deal in absolutes. RSI indicators, MACD crosses, Stochastics, etc. If [i]this[/i] happens, then the market [i]must [/i]turn with "such and such" historical accuracy. The problem with this is that those measures of oversold or overbought, can usually be worked off by either a function of [i]time[/i] or [i]price.[/i] Usually, being wrong portends to massive losses because the further price goes against your indicator, the more certain you become of a turnaround.

Elliott always has at least two working hypotheses about current price action. If it fails one, there is a logical explanation for why. This gives you enough fortitude to set tight stop-losses and admit to have followed the wrong interpretation. I find this far more amenable to trading, because admitting wrongfulness is characteristically emotionally painful and people tend to rationalize their way out of any bad situation.

richard5za
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Re: Chartists Forum

Post by richard5za »

Why a Chartists Forum in a Generational weblog?

So that one day we will buy back into equities at near to the bottom of the market. Let me elaborate:

I agree with the views expressed by StilesBC. If you want to do short to medium term investing you need stop losses in place because you are not going to be right all the time. If you can be right 75% of the time, and as long as you are not greedy, the profits will mount steadily.

But why charts in a generational context?

Because charts help us to see the current trends. Galbraith wrote about people who were beguiled into investing into the market down trend of the early 30's and lost all. Because every bear market has rallies, and thats how they were beguiled, they thought it was going up again. What John calls the "Principle of Maximum ruin". (The term 'Principle of Maximum Ruin' so exactly describes some of Galbraith's writing that I thought that this was a Galbraith term. John was more than mildly indignant at this suggestion and pointed out that he coined the phrase! Apologies, John, excellent term)

I sold out of equities 50% in February 2007 and 50% in October 2007. I wanted to be in cash and not equities in a market that based upon fundamentals was going to go down a lot eventually, and I sold when my charts gave sell signals. At the time I didn't know that October 2007 would be the top of the market, I just knew that the shares were massively over valued. (I lost all my savings plus borrowed money in the 1969 crash of the Johannesburg stock exchange so that was a good life long lesson. It really irritated me that my father, who had lived through the 30's, sold all his shares the year before and bought back at bargain basement prices about 4 years later)

Currently my charts are saying that there will be a bear market rally this Christmas or January. This may be wrong and if so my stop losses will kick in, but if I'm right, and I took some investment positions at the beginning of the month that are doing very nicely, there will be a short lived up, probably a sharp up, and then down. So I watch every day and will sell soon.

My charts will keep me from believing that this bear market rally is a trend reversal and back to the happy days of party making. My charts clearly show no bear market reversal. They keep me a sane trader investor.

And from the fundamentals I am fully confident that the Dow is heading below 5000 in the next 12 months to 3 years, perhaps longer. How much below 5000 I don't yet know, but 1500 is possible. My guess is that we are looking at the next long term bull market beginning around 2018, but again I don't know yet.

But my most important objective is to be sitting on lots of cash to buy back into equities at the market bottom. This, dear people, will be a massive opportunity, and something we cannot afford to miss.
Richard

richard5za
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Re: Chartists Forum

Post by richard5za »

Dollar / Euro and gold
The US dollar / Euro has been trading ina narrow range since the beginning of November. A decisive break above $ 1.30 to 1 Euro should in theory see the beginning of a new trend of a weakening dollar. Which of course is the key to a bounce in commodity prices, especially precious metals. As I write the dollar is at 1.3270 to the Euro. I don't think that this is a flash in the pan, and looks set to weaken more over the next few weeks.
I see that gold has broken up through the $ 820 resistance level and should now move into a new bull trend. I rate this gold chart as very strong which gives further credence to my $ / Euro forecast.
So, lets see what happens over the next couple of months. Maybe there will be more believers in technical analysis in due course.
Richard

richard5za
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Location: South Africa

Re: Chartists Forum

Post by richard5za »

Baltic Dry Index in early stages of recovery

From a chartists point of view the Baltic Dry Index is a lead indicator with respect to shipping of dry commodities such as iron ore, coal an other commodities.

It appears that the index bottomed on December 5, 2008 at 663. On December 11 it had risen to 711 and today December 16 it is at 828. The chartist in me says that the Baltic Dry Index is in the early stages of recovery.

To the chartist this is further confirmation of a weaker dollar, a bounce in commodity prices, and especially a rise in the gold price.

Lets see what happens.
Richard

richard5za
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Location: South Africa

Re: Chartists Forum

Post by richard5za »

Soon we will have a grandstand view of "The Principle of Maximum Ruin" in operation

The Christmas/January bear market rally appears to be happening as per my recent forecast. My charts indicate that a decisive break up above 8900 will trigger the Dow to test the 10 000 psychological level, and I suspect that this is what will happen. The Dow closed at 8924 on 16 Decemeber, and whilst I wouldn't call this a decisive break up, it could become this in the next few days.

Add to this the strong upward movement in the prices of general mining shares due to the commodities bounce. For instance, Anglo American closed in London yesterday at 1565 pence, up 48% on its November 20 low of 1054 pence.

And add to this a commodity bounce that is now becoming clearer. The weaker dollar trend is a key component to the commodities bounce. Commodities were also very over sold; whether some commodities will resume their bull market status, or not, is something that I am unsure about.

And add to this a strongly rising gold price, closing in New York yesterday at $ 857.50 My charts are seeing gold testing the $ 1000 level again.

And we will soon have some people beguiled into thinking that the bear market is over, and investing into general equities once again. But the bear market has a long way to run, and the Dow has a long way to fall.
Richard

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