Which one is relevant?

Ok, one question, Vincent. Are you using a line chart? I use the candlestick charts or OHLC because it shows the full range of trading which I believe shows important information. If you're drawing your 3rd fanline from the bottom shadow of July '06 to Aug '07, then it was breached, but just briefly then came to sit ontop of it again. However, if you're using a line chart, then it will look severely breached. You can see that the chart above has fan lines drawn from the bottom of the real body and the bottom of the shadow. I would use the shadow origin on this chart because I find that the points line up a little better. I just look for the fanlines to have the most points of "bouncing". I think both versions should be watched and both are relevant in their own way because some people are watching the line charts and others are watching the candlesticks and basing decisions off both of them.

External Market: Up, Down, or Sideways?

Well, Vee Dub, I have to say, don't jump the gun on selling. This is what I see looking at the major indices. First of all, I want to point out something about fan lines. Remember that the instructions in the CRISS book for fan lines show examples of reversals down from an uptrend. Each new fan line was breached by a LOWER low. However, that's not what we're seeing right now. We are seeing lower highs, but we're also seeing HIGHER lows which to me spells indecision. Financials are a big part of the stock market and when it has trouble everybody seems to feel it. People are cautious, we've been through a bloody summer and a lot of uncertainty while the markets deal with the subprime blowup and it's repercussions, but there have been reports of progress. A committee was meeting to come up with a workable alternative to get the commercial paper market flowing again. You can read about that here:

http://www.theglobeandmail.com/servlet/story/RTGAM.20071223.wabcp1223/BNStory/robNews/

I do check the news, but with a grain of salt added. The general feeling seems to be one of caution, but optimism. You've got some who think we're heading for recession, while others feel it's a good pothole, but by mid-2008, the tire will be fixed and we'll be on our way again. So let's look at some charts...

First of all, here's a 10 year NYSE chart. You can see back in late 1998 there was a bottom. I drew seven fanlines from there. Notice that it didn't make a lower low until 2001. It crossed six fan lines over TWO YEARS of basically flat trading. It's too soon to predict what's coming for 2008 and it's almost foolish to try. Remember, Chris always preaches the importance of synergy. Believe me, I've been watching these 20wk MA's pass over their 40wk counterparts and I would be lying if I said it didn't make every muscle in my body a little tense, but we don't make decisions based on one indicator. Here's a 2 year chart of the NYSE. You can see the upward reversal starting in June '06 clearly breaking three higher highs. March '07 was a different story. The rule in the book is that three broken trendlines signal a reversal, but in this case, there were not lower lows. It did eventually correct in August dropping even as far as the previous support found in March '07. Since then, we have had lower lows, but even if it did break the 3rd fan line drawn from August '07, it would have to break support at 8800 before I'd worry too much about it (I'd worry just a little). And don't forget, we're still not down to the long-term support either (check the picture of the SPX from my Dec 17th post to see what I'm talking about). On the other hand, it shouldn't really bother us too much because we trade with the trend. We watch the signals and if it goes up, we trade bullish, if it goes down, we trade bearish with a mix of both during the transition. If you look at the 3 fan lines drawn from August '07, you don't need to look at the NASDAQ or S&P because they're virtually identical. This is what I see when I look at the major indices. It's got to break one way or the other in the next couple of months OR we'll be trading flat. Notice also the MACD and RSI. This is a weekly chart. You see how the RSI was in overbought territory in May and ever since then it's been recovering/consolidating, same thing with the MACD. It did have a good bull run, maybe it was just time for a slow down. Time will tell, but it's not freakout time yet (I hate to use that as a term because we really want to get away from emotional trading). Let me restate. It's not time to get bearish yet, but it is caution time. I gotta tell ya, I was pretty relieved this week to get the market commentary letter from Chris because I started this "External Market Condition" thread and then found that I couldn't make a decision on it because it wasn't really building or declining and I was afraid maybe I was missing something, but Chris said in his email that the breadth indicators are giving mixed signals and until it gives a more solid consensus of a direction, it's best to sit and wait. Thanks for that Chris. It was funny in my head because I was thinking I needed to find a bullish or bearish position, but I couldn't get around that there were all these contradictory signals until I realized that that WAS the answer for the market condition. Well, that's all for now, sometime soon I will go through these breadth indicators and post my personal take on the market, but its not going to be today. Happy hunting!

CSUN breakout

Kay, so on CSUN. Here's a few important things to notice. Virtually every high volume day matches up with testing one or both of the red support/resistance levels. I'm confident in saying that the other lower high volume days will correspond with other support/resistance levels or MA's. They've been tested many times and in my opinion if this stock did shoot up and come down, it would definitely try to find support at around the $12 range. This is major breakout, hitting an all-time high, breaking through resistance and breaking the 3rd blue fan line signalling an official trend reversal.

FMCN, whaddaya think, whaddaya think?

So I was practicing on Investors Intelligence, looking at oversold sectors and went to Media to see if it's showing any signs of turning around. It hasn't been this oversold since 2001. So the first few charts either had weak RS or just looked not very good, but I came to FMCN and it gave me more to look at.

The company is almost 3 years old and all previous price movement is below the current price range on my chart, the current trend is a short-term trend branching above a longer-term trend(the black lines). It was showing positive RS, the MACD gave a buy signal in mid-November and has since crossed the zero line, the RSI shows positive strength (if I drew it right, the price line does belong flat and not up right?) and crossed the 50 line, I'm not sure what to take from the volume it seems to have gotten just slightly weaker (discounting the large bar in mid-Nov, obviously that was over the test of support). It looks possible to jump above the 10-wk MA as well as resistance while it's forming an ascending triangle. That would be a HUGE positive break which should move up to test the previous high at least, I think. On the other hand, it could break the 3rd fanline and reverse the trend, but I think that's less likely judging from the market condition. I'm only paper trading for now until I have the funds to test this stuff, so I'm not making any moves, but I would watch for a confirming breakout first or a support test. Which brings me to a couple of questions.

#1 I know the BP signal line is 30%, but when a sector is THIS oversold it should be just that much safer of a time to get in correct? Is it ok to get in once things start to reverse or is it still better to wait for the 30% line?

#2 Divergences. The book says ND's should be ontop of the indicator and the stock price and PD's should be under the indicator and over the stockprice. I didn't understand at first, but I think it's because you're looking for support in a PD and resistance in a ND. Did I draw my line right when looking for the PD in the last couple of weeks? I drew it flat because of resistance. In that case it's a PD, but if I was supposed to draw it uptrending for the past month, it would just be confirming the trend, right?

Big post I know, but now I'm done. Say, is anyone else's jaw hanging open over that early November negative divergence with PUT written all over it?

TIE too dangerous right now?

Well, it's been trading in a channel for almost two years. Up and down between $25 and $40. It's just above long-term support, and at the very least, you can expect it to test the 50-day EMA, but by the time that could happen in a couple of weeks, the 50-d might below my $28 confirmation anyways. Someone aggressive could try an A-T-M call for a short-term gain, but I think there are far better opportunities out there and would pass this one by. Good point about the MA's Vincent. I'm still getting into the habit of checking them. I usually do, but I overlooked it this time. There is pretty strong support at $25, but the question is what is going to happen once the MA's get there and depending what goes on in the sector and market. It could have a drop to $20 at support there. Please post on CRISS if you respond.

Fan line top/bottom points

Should fans only be drawn along lower lows (in the case of a reversal from an uptrend) or higher highs (in a reversal from a downtrend)? In a case like this, if Gold bottomed out right where it closed yesterday in the chart, would I still draw a fan line or only if it had a lower low? Eventually, whether it turns down or trades flat, it will cross a third trend line, so how would I determine that. Trading flat is obvious enough when it happens, but I'm just wondering about this specific sort of instance. It looks to me like a symmetrical triangle formation right now and could break out either way in the next month or two. Please post thoughts on CRISS forums. I don't want to take away from anyone's learning by creating an offsite comment post unless you copy it and post twice. I just like being able to post the pictures for reference. Thanks.

RIO needs a neckline

Hello CRISS members! Having been frustrated by the difficulties in relating pictures strictly through words and to save time and unnecessary complications, I set up this blog so I can post charts and ideas and get feedback. First post is prompted by Michael O. bringing RIO (Companhia Vale do Rio Doce) a mining company which looks like its forming a nice head & shoulders reversal pattern. We're discussing the neckline and where it should be drawn. Feel free to post strategy also as we can revisit this and check whose interpretation was most accurate in the future. This is going to be fun.

I interpret Rio's chart this way because the neckline is meant to be drawn between the two bottoms on either side of the head formation. It's up to the individual whether to include the shadow in a candle chart or not. I choose to acknowledge it because I've seen it line up so often and hit proven support or resistance even though it closed a lot higher or lower than the shadow. Also, if you look at a line chart, the first little bottom is the only one that shows up, the second dip doesn't show how far the trading range actually was for that day. I wouldn't mark this as the end of the first shoulder because it looks like a bump in the road on the way to reaching the head top. I read that the slope of the neckline adds bullishness or bearishness depending on its slope. In this case the slope is down, so it's got a more bearish atmosphere to it, unlike the H & S neckline we're watching on the major indices right now which is sloping up.

You can see my target on RIO from the purple lines and the supports at $21 and $24 which both have instances of resistance becoming support indicated by the arrows. I know it could stop short or farther than the target and we'll have to watch it and see, but as things stand, I'm going to say, judging from...
the increase in volume on the declines of both the head and the right shoulder,
the weekly MACD crossing below its signal line,
the weekly RSI coming just short of overbought, reversing, and now almost at 50,
it breaking its 10 week moving average,
the precious metals BP reversing from 70%,
the larger market issues, and a couple of others I can't think of right now...
I would watch for a strong neckline break, buy partial, if there's a return, buy a second half put and watch the carnage. Should be interesting to watch. Either way, I'm going to be learning.