Tag Archives: Chart

03 May

Looking ahead

Apologies for the lack of update yesterday. It was a holiday here in Spain, and I decided to take advantage of a break from the screen and soak up some sunshine.

We have an interesting week ahead of us, mainly because you have holidays in many places. Denmark for example will be off Thursday and Friday. Japan is off Wednesday and Thursday, and Germany and France and Swiss have a bank holiday Thursday.

3 maj 2016 2

RED FLAG EVENTS THIS WEEK

 

The all-important event – well take your pick – but I will be looking ahead to the Non-Farm Payroll out of the US on Friday. I will discuss this later in the week. For now – let’s look ahead to today:

Sometimes you get an indication of what is going to happen in Europe by looking at Asia. Today it is quite a mixed bag:

3 maj 2016

The DAX charts below show the DAX without volume and then with volume. Why are there two charts? I wanted to demonstrate to you that volume can be a great additional tool to your analysis, BUT it doesn’t have to be included if you can interpret the price action instead.

Chart number one, below, shows the DAX on a 30min chart for the last 6 days. It does take a wise man to see the DAX is trending lower, and you should be selling rallies, as long as we trade below 10,150.

3rd May 2016 3

DAX is trending lower, and has failed to hold on to 10,400

The second chart looks at the volume pattern for the last 6 days. There is something in particular that I want you to be aware of, which happened during the timeframe I am zooming in on.

3rd May 2016 4

DAX with volume figures – notice the volume increases on the sell-offs, and remain flat on the rallies.

If you zoom in on the middle part of the chart (see below), you will see a favourite pattern of mine. I call it the Trap Door. Notice how the DAX makes a great recovery, and price goes above the morning high. Notice also how volume doesn’t confirm this, because it is running at a lower high. This in itself is only cause for concern – not an all-out sell signal, but then notice the market selling off BELOW that last price spike bar. This is a Trap Door sell, and it means I will remain bearish as long as DAX is trading below 10,300.

dax fake volume

DAX Fake Move = Trap Door

3rd May 2016 5

Dow lost and regained 17800 very quickly

The next chart is the Dow – above. I betted heavily on the Dow falling last week and I won big. Now I have to contend with the fact that the Dow has regained what it lost, and it did it the day after. So it changes the playing field today. So far the DAX is relatively flat, but I am watching for signs of strength or weakness in the early going. It is the beginning of a new month, and the way the Dow traded yesterday will have me alert to abandoning my bearish stance. So far I will still hold on to my bearish view. One rally will not have me change my mind.

Have a nice day.

Tom Hougaard
Tom Hougaard

26 Apr

Handling movements intra-day and looking ahead to FOMC and BOJ

Good morning,

The indices fell out of bed yesterday morning. The writing was on the wall after the first 10 minutes with a huge reversal in the DAX. It’s one of those things that you simply can’t predict in your morning analysis. You have to be ready for it.

The first chart is sort of a bible to me. I did some statistical analysis of all the closes in the Dow Jones index over the last 30 years. I wanted to know if there was a statistical bias towards a positive close in the Dow. There was, but not by as much as you would have expected. The chart below shows the distribution of positive and negative closes in percentage terms. There are 7400 observations, and 54% of those close in positive territory, while 46% close in negative territory.

What can you take away from this chart? You should accept that no matter how bullish or bearish you are on the market, you should at least accept that anything can happen and the chances of a positive close is only marginally higher than the odds of a negative close.

distribution of closes

Distribution of Dow Jones index closes in %

Today is Tuesday, and we can look forward to an FOMC report Wednesday night. Shortly after we have Bank of Japan with their outlook report. It could be an explosive 24 hours into the weekend. Therefore it is important to be prepared.

economic reports

Let us start with the Dollar Yen. I have annotated the charts in the caption below the chart:

charts 11

Dollar Yen Price Action before and after the 18 December announcement

charts 10

Dollar Yen Price Action before and after the 29 January announcement

charts 9

Dollar Yen Price Action before and after the 15 March announcement

What do I take away from these 3 charts – a very narrow picture of historical price action after a BOJ statement: There tends to be a good follow-on move past the announcement. While I will not be able to predict the direction ahead of the news, I will be able to gauge the news impact after the news and enter the market.

Before BOJ, a few hours before, we have FOMC in the US. I thought I would show you what has happened in the last few FOMC days.

charts 8

Dow Jones before and after the FOMC statement on 16 December 2015

charts 7

Dow Index Price Action before and after the 27 January announcement (huge reversal)

charts 6

Dow Index Price Action before and after the 16 March announcement

Do you see a really clear pattern? I don’t. I see one with a big follow-through move into the close, and I see one with a big reversal. That doesn’t mean I won’t trade it, but I will have to consider my strategy on the spot at the time.

Finally, let’s take a look at Euro Dollar, which tends to be brilliant to trade after news announcements:

charts 3

Euro Dollar Price Action before and after the 16 March announcement

charts 5

Euro Dollar Price Action before and after the 16 December announcement

I do this to prepare for what might happen on the day.

Final word: it seems to me that our job as traders is rapidly disappearing.

Bloomberg’s Richard Breslow, former FX trader and fund manager who now comments on markets, has been on a roll lately. One week ago, he officially lost it, going on an epic rant how central banks have devastated “markets” with their constant intervention (proven yet again with today’s report that the BOJ now is a Top 10 owner of 90% of Japanese stocks): “You don’t need to be a Taleb or Mandelbrot to calculate that we have been having once in a hundred year events on a regular basis for the last thirty years” he raged.

Today, his post-weekend anger has crystallized in another aptly titled note, “You Have to Go With the Central Bank Flow”, in which he writes that “for traders, just when they were promised an end was in sight, policy divergences would become tradable and correlations would weaken, the nightmares keep coming.”

The solution: “investors must live with the reality of having to make their living front-running the central banks or be distorted out of existence.”

Well, such is life under central planning: any original thought or fundamental analysis is crushed and the only thing that matters is anticipating what Janet Yellen will have for dinner next. Traders – and the general public – had a chance to restore normalcy when the entire system crashed, by averting bailouts and allowing a reset; now it’s too late.

Here is Richard Breslow on the verge of losing it again:

The whole story here: http://www.zerohedge.com/news/2016-04-25/why-traders-nightmares-just-keep-coming

Tom Hougaard

Tom Hougaard

12 Apr

12 April 2016 – thoughts ahead of the day

In my weekend analysis I wrote that I was bearish stock indices. I based that opinion on a method I have developed over the years. I have used it to forecast many tops and lows over the last 15 years. The forecast is based on weekly charts, so I am not too concerned what happens intra-day. This method is used to trade the big moves.

So going into the trading day Monday (yesterday) I knew that this week could be the beginning of a very substantial move down. I immediately started shorting indices yesterday morning, and I thought I was going to get rewarded for my boldness. That was not to be. Someone somewhere said something. Who know what they said, but the effect was obvious. The market reversed on a dime, and the DAX was strong all day.

The Dow took its cue from the DAX and it too rallied most of the afternoon. It is during times like that you begin to question your forecast. It is also during times like that – that you have to remind yourself that the forecast is based on weekly charts, so it should not matter what happens from minute to minute intra-day.

This leads me to the point of this story: who is buying? Who is it that is buying? How many times over the last week of trading have I seen a very strong open in the Dow, and then it all just fizzles. The Dow probably should be stronger. The dollar is strong, albeit a little weaker over the last 10 days. Oil is recovering well. Yet whoever it is that is pushing the Dow up during the first hour hasn’t got the ability to keep it there.

Monday’s trading session was bad news for the optimists. There are no buyers above 17,700. Now we are 150 points lower again, and my forecast is looking better. I digress. Let us trade the market, and not the forecast. Anyone can forecast, even me, by flipping a coin, and calling heads bullish and tails bearish.

There is no traction in the Dow above 17,700.

There is no traction in the Dow above 17,700.

Instead let us understand what is going on underneath “the bonnet of the car”, so to speak. Stocks got what they want, didn’t they?

  1. Central banks are behind them – supporting them
  2. Oil is recovering well – another $10 and it has doubled since the low of $25
  3. There is so much worry about earnings, yet the Dow is sat just a few hundred points from an all-time high.

And yet we keep failing at the most critical times, like today. AND why is Gold so strong? WHY is YEN so popular (safe heaven).

11 April 2016 Dax index 30 min chart

The DAX index is displaying perfect harmonic moves, which suggest we are headed back down to the lows.

Conversely, we keep “failing” – or not failing, as it is – just as the markets look like they are about to free-fall. Something is still supporting the market. It is turning out to be quite the tug-of-war, and I think the earnings season will force a solution.

Here is my position: I have put on long-term short positions in stock indices. I have a sell signal, and I have executed the plan. In between I will trade in and out of the market day trading style, like a good student of the markets.

I will talk to you again tomorrow.

Tom Hougaard

Tom Hougaard

08 Apr

April 8 2016 Analysis

TAX DAY and the Stock Market

April 15
Tax Day in the United States. Many United States residents mark Tax Day as the deadline to file their income tax details to the Internal Revenue Service (IRS). The date is usually on or around April 15. However, this deadline may be extended to accommodate holidays or extreme weather conditions.

The run-up to tax day (April 15) traditionally sees somewhat negative pressure on U.S. equities.

Bad Thursday leads to bad Friday in a down week?

Have you heard the expression that a Friday in a “down week” will lead to selling?
So if the close on Thursday is the lowest for the week, and it is a negative week, we can expect more selling Friday?

Well, ahead of tomorrow, I have taken the liberty to share some of my research with you. It is easy to believe things that are easy to remember, such as “sell in May and Go Away”, but it may also give you a bias which leaves you inflexible to take advantage of a big move.

I have included the last 8 “Thursday Friday combinations. You should be able to very quickly spot a tradeable pattern. If you can’t, let me guide you.

Thursday-Friday-chart-1

Thursday Friday chart 2 Thursday Friday chart 3 Thursday Friday chart 4 Thursday Friday chart 5 Thursday Friday chart 6 Thursday Friday chart 7 Thursday Friday chart 8

Over the last 8 Fridays (excluding Good Friday), you have had a good trading set up in the Dow index if you attempt to follow direction set after the first 3 or 4 bars. This means you attempt to follow whatever trend sets forth after 30 minutes of trading.

7 out of the last 8 Fridays the market has closed at the extreme for the day, if you can ignore the first 10 minute bar at the open. By extreme I mean it has closed at the high of the day or the low of the day.

Although this sample space is small, it is far more important to go into the trading day, knowing your history, than it is going into the trading day thinking you know what will happen. A negative Thursday in a down week does not guarantee a negative Friday.

I have included Larry Pesaventos video as well.

Have a nice weekend.
Tom Hougaard

Tom Hougaard

07 Apr

Be careful who you listen to

I am deeply distrustful of what I read in the newspapers or see on TV.  There is always another side to the story, and I often don’t get to hear about that side.

I spent 9 years of my career talking to financial journalists. They would call me during or after the trading day to ask why such and such an event had taken place. Why did Vodafone rally? Why did IBM fall?

If I told them that Vodafone rallied because it had broken above its high from 6-months ago, then I would not be quoted in the paper the next day. If I told them that the rumours in the City was that Vodafone was poised to announce quarterly results which was above expectations, then I would find my name in the paper the day after.

If I told them IBM was selling off on rumours of disappointing sales in Asia, I would get a quote in their column. If I told them it was because IBM was making new monthly lows, and short-term traders were jumping on the band-wagon, I would not be quoted.

So I have a fairly good idea of idea of what is rubbish and what isn’t, when it comes to news reports. In general I stay well clear from mainstream media. I NEVER listen to news during the trading day. I am aware of news reports coming out, and I make sure I take the necessary precautions.

My friend and legendary trader Larry Pesavento sent me some images of the Dow Jones Index with various newspaper and magazine front page quotes next to them.

From the 1970’s the business week front cover story of December 1972 proclaims that the bull market will continue in 1973. Business Week timed the top with that headline. Dow fell relentlessly for the next two years.

1970s chart

 

The 1980’s weren’t short of a few ill-timed headlines, such as Fortune’s bullish call days before the 1987 crash.

1980s chart

1990s chart

2000s chart

My own favorite is from 2000, where I read a headline discussing the NASDAQ, stating that “in this new paradigm, profits don’t matter”. Within a month NASDAQ had started the bear market which was to shave off 83% of its valuation over the next 3 years.

Be careful who you listen to. Even so-called experts, world recognized authorities, may have an agenda, which they don’t tell you about. I firmly believe that talk is cheap, and that everything you need to know is in the price. Price is king. Learn to master price and the rest will fall into place.

You might want to read this article

http://www.marketwatch.com/story/how-much-do-profits-matter-to-stock-market-returns-2016-04-01

Tom.

Tom Hougaard