NYA Oct 31st

How long is long in overbought territory?

Just wanted to share a quick example of what Chris means when he says that we should remember that the market can stay overbought for long periods of time, but generally stays oversold for a short period of time. Here's a comparison between the NYSE BPI and NYSE over 15-16 months. You can see the period of Jan through Feb 07 as well as Apr through June 07 and how long they stayed overbought, 2 months and 3 months respectively. I remember asking myself a few times in the course, how long is long? Now I know and so do you.

Osisko Exploration a BUY?

Ok, this is a company I've been watching for a while, here's what I see.


-Full feasibility study to be released in Qtr 4 2008 with production in 2009.
-NI 43-101 released in July with 8 million oz inferred resource which at $1000 gold is an 8 Billion resource with continuing drilling and exploration through this year and the future.
-It's been trading in a flat channel for 1 year and 3 months between $5 and $6.50.
-It's at the RSI overbought line which has marked significant bottoms previously.
-As its trading flat, there's no significant data from RSI or MACD as far as divergences aside that it had a huge run last year and has been consolidating ever since. ($0.15 in 2005 to $5.00 in Jan 2007)
-10wk MA is above the 40wk MA
-BPI recently moved from below to above 30 and is currently at 38.37 (on stockcharts.com)
-It's trading flat in RS against $nya(New York Composite) and RTM (Equal Weight S&P Metals Sector ETF)

NOW two questions...
1. It looks like it's making a sort of "year and a half long ascending triangle" formation, does it count when its over that long of a period?
2. daily chart volume spikes decline, but the weekly is flat right across, what should I take from that? Feedback?

Pre-Trade Evaluation Form

Here's a look at the complete form I put together for the Pre-Trade checklist.

Negative Divergences in Gold

Here ya go, Cuadra G. They're slight, but they're valid, I'm pretty sure. Gold has been charging ahead. With the latest breakout $1000 is in reach by the measured move. Being a pretty large psychological barrier, I wouldn't be one bit surprised if it hits $1000 and then has a $50-100 correction. You can see how in the Weekly RSI it barely dipped back into the regular range before the next breakout sending it back into overbought. I expect it's not done yet, but it's good to be aware of at the same time.

I took some time to look for an article Chris wrote once. I thought it was in the Start Here section of CRISS, but I didn't find it. In it, he was commenting on how a recently run through correction had brought the indicators close to oversold which was good, but the Weekly RSI only got to the 50-line and I forget what the MACD was doing. Anyways, the dailies looked good, but the weeklies were cause for concern, that's why I found the weekly gold so interesting.

Hold, Close, or Buy?

Hi ccrane, I don't mind putting the name out there of the TTR trade since the sell to close order has already come out and no one is going to make money off of Chris's recommendation now. It's difficult to comment on your idea to hold because I don't know what prices or when you got into the COG calls or turned it into a spread. I sounds like you did it all just yesterday which is a little scary. If you did, I'm sorry. The RSI was already in overbought territory and it would have been better to wait for the next opportunity. If I'm understanding you right, you want to hold onto both the long and the short call hoping that the call will become worthless (or just less) so you can buy it to close for a profit and then sell to close your long call. All I can say to it really is Chris gave the sell and you should follow it. Anything beyond that is your own speculation and risk. You're capped on your gains anyways because the short call will eat up any profits (or at least some) from its strike price upward that your long call would gain. If you wait for it to drop, your long call is losing, too, so you might as well close your positions. That's my advice.

I'm going to throw a little sidenote in here though just for "huh, look at that" value. In looking at the 3 year chart I noticed that every single time the RSI moved into OB territory and back out while the price was making a NEW HIGH, the stock price retraced to previous resistance, but when it only got close to OB but not through, it had an increased tendency to break back below previous resistance and return to previous support or near to it. SO, what I'm calling (depending on the next day or two's price movement relative to its new high) is a return to the $42 to $43 price level after which we'll see what it does. To be honest, I'm tempted if the price holds to a new resistance that it would be neat-o to buy a put and make money on the way down, but I'm just going to watch it. Reason being is, buying a put on a stock in one of the strongest sectors with strong relative strength is completely against the CRISS method. So I'll watch it and be amused if it does what I think or it'll do the opposite and I'll be glad I didn't act on it. The odds are against me in this one, or at least not stacked enough. I'll wait for the next opportunity...

Point & Figure Pointers

By no means am I an expert on P&F, but what I understand I will share. The main point of P&F charts is to take the "noise" (less significant regular fluctuations in a stock's movement) out of the way so you can get a clearer picture of the current condition of the stock. When you're looking for buy or sell signals, you don't want your settings to be too sensitive or the P&F chart won't filter out the noise and you'll get a lot of buy and sell signals. On the other hand, you don't want it to be too INsensitive or you could miss significant moves to which you should be paying attention. You can do this in two ways, either by adjusting the amount of boxes needed for a reversal or by adjusting the value of each box. Sometimes a mixture of both might be better. Below I'm going to compare two different line charts of Goldcorp Inc displaying the buy and sell signals given by a P&F chart with box values of .5 with a 3 box reversal, then of .7 with a 3 box reversal.

You can see obviously how a .5 box value generated many B&S signals and would have had you buying high and selling low if you went solely on P&F while the .7 box value identified the significant resistance break and trend reversal. The same thing can be done with adjusting the # of boxes needed for a reversal signal. First a .5 with a 4 box reversal and below that a .5 with a 6 box reversal.
You can see how adjusting the reversal achieved the same result. The downtrend was identified in June of 06 and the buy signal was in the same place as for the .7 with the 3 box reversal. I would always recommend looking at the line chart also to see the daily activity along with the various indicators that we've been taught, but this at least is one way to use P&F charts.

I'm using them in a sort of a broad way. I'm looking to identify LT trends so that when I see a signal, it's more significant to me and I can reasonably rely on it for possibly months on end. With the buy signals here, I could watch for "touchdowns" to trendlines as entry points, but I could do that just by looking at the line charts. I haven't really used these a lot and haven't found a lot of use for them yet. If anyone else relies on them heavily or has insights that I've missed, please help me (and mario) learn by sharing them with us...

Extra Tools from Michael O's toolbox

Courtesy of Michael O:

Gold's breakout

Well, it's finally happened. Gold has broken its numerical historical high of $850/oz. Teeka wrote an article about it for the Tycoon Report called 'It's time to buy gold' that they just reused because its a good time to stress its points again. Be sure to check it out. Anyways, by the chart below you can see the symmetrical triangles I drew. The first taking six months and the latest taking only a few which broke its trendline resistance last week and now has broken it's price level resistance. By this pattern you can create a price target of about $940. I'm not investing in the metal, but I do have some positions in near-production, early production mining companies. They're just starting to create their revenues right now which should be reflected on their earnings reports throughout this year and onward. Just wanted to point the opportunity out.

When NOT to sell

Ok, so as I was saying, there's this chart that just makes me want to spit every time I look at it because I hit a GOLDEN opportunity and didn't know it. Sometime last spring when I was early on "experimenting" in the market, my greedy self started playing with momentum. I would check the gainers list every day to see what moved. One day, I saw a company named Timminco (symbol TIM) that had moved 100% in one day from $1 to $2, so I took a closer look and found that they had just signed a $50 million dollar contract over 3 years to supply Tire rims to a European company if I remember right. So I said to myself, "Self, this is a big deal. I think it's likely this isn't done moving yet. We should put in an order." So I did the next morning. When I checked at the end of the day, the stock was at $3 and I'd made 50%. Fearing (bad reason) losing my gain, I sold the very next morning. I'd check it every now and then to see what it was doing and so began my bitter experience of watching it continually break new highs. Dec 31st, 2007, Timminco closed at $21.95 (excuse me while groan). That could have been a 1000% gain. Experience would soon teach me that momentum was more often going to lose you money than make it. Looking back, I can only shake my head because I was so green. I had no idea what I was doing and basically I was speculating which was equivalent to gambling in my opinion. I followed NO indicators. I didn't know how to read charts or draw trend lines. I was pretty much looking at different terms and reading the news releases and guessing to its potential. I held on through support breaks, trendline violations, and tried to call bottoms (without indicators, how do you do that?) Now for the interesting part, the charts. Below you'll find a daily and then a weekly 1 year chart of Timminco.

I drew these charts with 10wk, 20wk, and 30wk MA's. I wanted to go back and take a look because I wanted to see what I didn't know then as well as get some clues as to help me not get shaken out of other strongly advancing stocks I may find. You can see the daily RSI is frequently above the overbought line, but for an advance like this it doesn't really matter because it's doing so much while its up there. This is such an obviously trending stock that it should have been, well, obvious not to exit. In the whole advance, it never touched the 30wk MA even once. All in all, I'd have to say I'm most impressed with the weekly MACD as it has only had one sell signal in November, but coupled with the MA's and RSI, it wasn't ever strong enough to warrant actually selling. I came across it on tv last month and apparently, a lot of their appeal is they're a supplier of solar-grade silicon which is in huge demand with the alternative energy movement coupled with the fact that there aren't a lot of suppliers. I googled and found a couple of companies that are preparing to produce solar-grade silicon in 2008, but they both trade on the Frankfurt exchange if I recall correctly. Anyways, I just wanted to share my story and if anyone has any tips about how to know when to stay in when sell signals are given, that would be great and beneficial to all. I do know that in a strong uptrend, the first MACD sell signal should be taken as a warning and not a definitive sell signal. Also, that during consolidation and flat trading, the RSI & MACD will both trend lower to the oscillator line, but should not be taken as weakness, just healthy consolidation. Any others?

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.