Dancing with the Trend

Market Breadth and Technical Analysis

Some of the following is from my book, “The Complete Guide to Market Breadth Indicators,” published by McGraw-Hill in 2005, with the Second Edition now available in Amazon Kindle format.

“The noblest pleasure is the joy of understanding.”  Leonardo da Vinci

Market Breadth

Market breadth indicators are those indicators that are sometimes referred to as broad market indicators.  Probably the simplest way to think of them is to realize they generally do not refer to, or use information relating to an individual issue.  Breadth will treat all stocks in an index equally.  The stock with the largest capitalization and the smallest are both equal in breadth analysis.  Most breadth analysis is total market related in that it deals with the complete market.  A rising tide raises all ships is the more picturesque way to grasp its meaning.

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Dancing with the One That Brung Ya!

My apologies to the late Darrell Royal, the University of Texas football coach who used this saying often when defending his continued use of the “wishbone T,” an offensive football formation that some were always questioning.  The saying has a valuable message that is applicable to many endeavors; simply, do not forget how you got where you are.  It is very appropriate to investing strategies that have long-term success.

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Hindenburg Omen

There are many who are now talking about the Hindenburg Omen so I thought I would explain what it is and where it now stands.  This is easy since I knew Jim Miekka (creator of the Omen) as he offered to assist me when I included some of his material in my “The Complete Guide to Market Breadth Indicators.”  Jim also made many other contributions to technical analysis, including a mathematical process to refresh the McClellan Summation Index.

The Hindenburg Omen is an indication of market tops and was created by James R. Miekka and dubbed “the Hindenburg Omen” by Kennedy Gammage of the Richland Report.  You’ll recognize Kennedy as the former provider of the McClellan Oscillator and Summation Index numbers on FNN and now, CNBC television.

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Article Summaries 8-2016 to 10-2016

Most blog authors on StockCharts.com are writing about the current markets and do an exceptional job.   I do not write about the current markets as I wanted to share my experiences after 40+ years as a technical analyst.  Not only experiences with trading and investing, but model building and money management.  I also share the details of all the Master’s degrees I have – those expensive learning experiences that hopefully I learned something from.  Since I rarely go back into the archives of other’s blogs that I read, I wondered if that is common or not.  Hence, after talking with Chip, a summary of my past articles might encourage new readers to take a look as most of the material is timeless.  That’s timeless, not worthless!  This is the sixth of the summary series and starts in August, 2016 and ends in October, 2016.  I’ll try to do future summaries whenever I have a dozen or so articles to include.  You can click on the article name for a link directly to the article.

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Time for Genuine Concern or just More Wall of Worry?

Is this a market correction?  Generally accepted levels (-10%) that most deem as a correction versus just a market pullback (-5%).  Is this going to become a bear market (-20%)?  First, there is not a person on Earth that knows the answer (despite what you hear on TV), and I do not even attempt to claim that I do.  I read a great deal, too much maybe.  Many believe this is just a correction in an ongoing bull market.  Many technical analyst friends of mine strongly offer evidence that a bottom is going to be soon.  And just as many think we are at the top.

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WHY Are So Many Esoteric Things Attached to Technical Analysis II

This is the second in a series with the first few paragraphs the same as the first one.  I am not sure why there are so many vague and totally subjective analysis techniques that have become part of technical analysis.  Probably because the main stream Wall Street and their marketing department, academic finance, does not follow technical analysis like they do the accepted rubbish from the ivory towers.  Early in this WHY series I tried to be convincing that technical analysis’ basic premise is the analysis of price; price that is determined in the auction marketplace.  See the first WHY Are So Many Esoteric Things Attached to Technical Analysis here.

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WHY Support and Resistance Works

Support and resistance are mainstays in technical analysis; sadly, misused and abused by many.  The purpose of this article is to hopefully explain why they work when used properly.  I have to admit that when I first got interested in technical analysis and charting, I drew trendlines all over the place.  Once I began to fully understand the basic premise of technical analysis; that it is based upon price; price that is determined in the auction market by buyers and sellers.  I have discussed my thoughts on trendlines in an earlier article but after 45 years only now consider horizontal trendlines since they are based upon price.  I see others drawing trendlines all over charts connecting visually appealing points at bottoms and tops, often not with much accuracy.  That is the only good thing they are doing; most non-horizontal trendlines should be drawn with a large brush or marker.   Just switching from arithmetic to semi-log charts can change them.

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High Low Validation

This is an attempt to help validate new high and new low data and, to be honest, is still a “work in progress.”   If you consider the facts relating to new highs and new lows, you will see the necessity for this.  A new high means that the closing price reached a high that it had not seen in the last year (52 weeks).  Similarly, a new low is at a low not seen for at least a year.  Note: This makes them very different than Advances, Declines, Up Volume, and Down Volume, which are based upon the difference over the previous day.  These indicators try to identify when the new high or new low is determined to be good or bad using the following line of thinking.

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Scrambling to Safety

Once a bear market gets underway (nautical term), few will make adjustments to their portfolio. Usually it is well into the decline before most even begin to get concerned, and then they are convincing themselves that it is too late and they might sell right at the bottom.  That is certainly the siren song of most.  Market tops are extremely difficult to identify except in that wonderful world many live in called hindsight.  Especially after an extended bull market well into its 7th year.

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