Upload
john-ronel-d-deomampo
View
219
Download
1
Embed Size (px)
DESCRIPTION
COL Financial Technical Analysis PDF
Citation preview
Presented by:
Juan G. Barredo
Vice President
Chief Technical Analyst
COL Financial Group Inc.
“Technical Analysis – Part 2
Technical Indicators & Market Cycles”
COL Financial
Group Inc. Presents
Outline • Review of Part 1
• Technical Indicators
– Moving Averages
– MACD
– RSI
• Market Cycles
– Bull and Bear
– Elliot Wave
– 4 Market Modes
• Building the plan
Part 1 Review Looking into Trends
1. Identify your Trend (check support/resistance)
UP – Higher Highs and Higher Lows
DOWN – Lower Highs and Lower Lows
SIDEWAYS (Consolidations) – Not any of the above
2. Sketch out appropriate Trendlines;
readjust when necessary then follow its cue.
Up Trendlines – must be drawn by connecting higher
lows or bottoms to determine the rising demand base
Down Trendlines – must be drawn by connecting lower
highs or tops to outline the presence of exiting supply
Support and Resistance
Reversal of Roles
Resistance now
acting as Support
Resistance
Support
Trends & Trendlines
Up Trendline
Down Trendline
Magnitude & Duration
Time
(Duration)
Pri
ce
(Mag
nit
ud
e)
(1) Correction in Time
(2) Correction in Price
This principle states:
“It takes time for price to move towards its intended target.”
… any exaggeration must eventually be paid for in time and/or price.
50
45
40
35
30
25
20
15
Technical Indicators
Technical Indicators • A technical indicator is a study of price data
derived from various statistical formula
plotted onto a graph
• It serves three basic functions:
– To Alert
– To Confirm
– To Predict
• Generally TI study two aspects of markets:
– Trend Momentum (ability to move)
– Trend Quality (durability)
Consequential Price Movements
• Momentum studies trend durability. It attempts
to discern the speed and durability of a Trend
move – just as if you were gauging the speed of
a car by looking at it’s speedometer
• Drawback:
• Does not work well in Consolidations
• Three indicators:
• Moving Averages (MAs)
• The MACD
• Relative Strength Indicator (RSI)
Momentum Indicators
• A price-average line plotted
onto a chart in direct reference to
market price
• It can be used to:
• Identify trends in various
time frames
•Identify points of power -
support and resistance
• Qualify strength of trends
•A 10-day Moving Average will be
computed as follows:
Ave. Price = (Price of day 1 +
day 2 + day 3 +… price of day
10) / 10
We use three period Moving Averages:
65-day =1/4 a year (trending MA) 130-day = ½ a year 260-day = 1 year
You can also use 32 & 16 day MAs to decipher faster (shorter) trends.
Moving Averages
Moving Averages: 16-day MA 32-day MA 65-day MA 130-day MA 260-day MA
Moving Averages
•Moving Averages may replace trendlines in identifying trend
configurations; smaller averages point towards shorter term trends, etc.
Short Term
Medium Term
Long Term
Moving Averages
•How to use: Buy above the line or stay long; sell or stay out below it
• Crossover of smaller MAs over/below bigger MAs reinforce the trend
Sell
Crossover
Sell
Sell
Buy
32-day MA
65-day MA
S
S
S
Lopez Holdings 16-day MA 32-day MA 65-day MA 130-day MA 260-day MA
S
Moving Averages
• After a breach the next MA becomes the next support or resistance
R
R R R
R
Short Term Ave: 16-day MA 32-day MA
Moving Averages
• Stocks trading and staying above short term averages show power; a
breach beneath it shows a loss in upward momentum
• MA in proper sequence order will re-emphasize the trend durability
• A lagging but effective momentum tool that
uses a crossover system to justify changes in
periodic trends.
• It has three component lines:
MACD (Moving Average Convergence Divergence)
• MACD
• Signal line
• Zero line
• The MACD being above or below the Signal Line will
call either a Buy or Sell read:
•MACD crossover above the Signal line = BUY
•MACD crossdown below the Signal Line = SELL
• The MACD being above or below the Zero Line will
call the effective trend bias:
•If the MACD is above the Zero Line = Up Trend
•If the MACD is below the Zero Line = Down Trend
•Note: Move in only on stocks showing an MACD BUY
in an UP TREND; take profits when a SELL is shown
MACD (Moving Average Convergence Divergence)
Buy
Sell
Buy Sell
Buy
MACD (Moving Average Convergence Divergence)
Posi
tive
M
om
entu
m
Neg
ativ
e M
om
entu
m
Buy Sell
Lopez Holdings
Moving Averages
• Remember: Buy only when MACD shows positive
crossovers and not MACD crossovers below zero
Sell Sell Buy Buy
• A momentum-oscillator that swings to and fro an
Overbought or Oversold conditions to highlight
extreme ends of a price move.
• It too comes with three component lines:
RSI
80% Line
20% Line
RSI (Relative Strength Indicator)
A divergence is a
lapse in strength
shown by the RSI
compared with its
Prices.
i.e higher-high in price
compared with a
lower-high in RSI.
This produces bearish
connotations that
could lead to a larger
corrective tug.
RSI (Relative Strength Indicator)
Putting it all together
Looking for a SETUP:
•A SETUP is a condition that presents
concurrent readings by most, if not all,
technical indicators.
• It is the best time to execute a trade.
• A Setup fittingly filters short-term price swings
that are commonly unreliable and unmasks
distinctive trend moves that are less subject to
speculation and supposition.
Preparing your plan/checklist
Is there a Trend? (Draw trendlines) Yes
Check Moving Averages With you?
Above 65, 130, 260?
Check MACD With You?
Buy signal above ‘0’?
Check the RSI With You?
Overbought?
Divergence?
Decision Time IF 3 or ALL SAY YES… THEN GO!
IF ONE SAYS NO… BEWARE THE UNDERTOW.
IF TWO SAY NO… YOU SAY NO!
Is there a Trend? No
Lengthy Consolidation Yes
Just Stay out!
Lengthy Consolidation No
Be watchful of support and resistance.
Wait for a breakout condition.
Do not anticipate unless YOU ARE SURE!
Preparing your plan/checklist
Market Cycles
Market Cycles
Cyclicality of markets:
A) Most markets are cyclical
B) They follow / precede the
basic business cycle
C) Cycles may not always
be regular in time and
magnitude, but they
usually start off with an
expansion phase then
followed by a contraction
phase
D) Thereafter it begins a
new cycle
Market Cycles
Recession Early Recovery Full Recovery Early Recession
Market Low Bull Market Market Top Bear Market
A) Stock Market swing always
move first than the business
cycle
B) They bottom out while things
still look bleak; they top out
while things still look good
C) This is because markets are
always forward looking and
sensitive to advance
projections and guidance
D) This explains why investors
get caught into tight spots –
because of disbelief in trend
implications
The Bull and Bear Cycle
High Unemployment
Capital Spending ↓
Corp. Profits ↓
FDI ↓
Stocks Undervalued
Credit ↓
Employment ↑
Liquidity ↑
Exports ↑
FDI ↑
Infrastructure
Spending ↑
Stocks ↑
Tourism ↑
Employment ↑
Wages ↑
Capital spending
↑↑
Stocks
Overvalued
Credit Expands
Real Estate ↑↑
Inflation ↑
Interest Rates↑
Overinvestment
Excess capacity
Inventories ↑
Headline in
press very
positive
Excess Credit
Stocks Soar
Credit Growth
Slows
Corp profits
deteriorate
Stocks-Failure
on new highs
NPLs ↑
Banks Tighten
lending
Condo Sales
drop
Credit tightens
Economic
numbers fall
Car, house,
appliance sales ↓
Real estate ↓
Bankruptcies
Hotel vacancies
Unemployment↑
Trading Volumes ↓
Capital Spending ↓
Interest rates↓
Foreign
participation↓
Currency weakness
/ devalues
Utmost pessimism
Market Life Cycle
The Elliot Wave
EW made up of:
A) Five Advancing or Impulse waves
B) Three declining or Corrective waves
Cycle within a cycle:
A) Longer impulse waves in
Bullish phases
B) Longer corrective waves in
Bearish phases – a 5 wave
correction may herald a
more bearish phase
“Weak Bull” Swing or Range Trading
“Strong Bull” Momentum Trading
Identify your Market Phase
“Strong Bear” Momentum
Trading
“Weak Bear” Swing or
Range Trading Warning
Distribution
Bearish Recovery
Accumulation
Bullish
Identify your Market Phase UP DOWN
Swing Mode Momentum Mode Swing Mode Momentum Mode
“Weak Bull” “Strong Bull” “Weak Bear” “Strong Bear”
Ranges & Gradual Channels
Strong Channels & Runaway shifts
Ranges & Gradual Channels
Strong Channels & Runaway shifts
- Range Trading - Buy breakouts - Range Trading - Short breakdowns
- Buy Low Sell High - Buy and Hold - Sell Rallies Buy Dips
- Short and hold
- Price > 65-day MA but correct below 32-day MA
- Price > 16&32-day MA and MAs are in upward sequence
- Price < 65-day MA but rallies above 32-day MA
- Price < 16&32-day MA and MAs are in downward sequence
- MACD buy - MACD buy - MACD sell - MACD sell
- RSI below 40 then rolling up
- RSI > 50 - RSI over 60 then rolling down
- RSI < 50
Preparing our View and Plan
1. Get a broad look at markets
• Macro – Global Markets (indices, currencies,
commodities, bonds)
• Micro – PSEi, Sectors, standouts and fallouts
2. Determine what phase your are in
3. Pick out your watch list
4. Use classical and Technical Indicators to filter
your choices
5. Prepare your trading plan
• Sort out your target ranges
• Identify your stops
• Measure your risk-reward potential
• Act out on qualified trades
What to do?
What we have learned
1. Technical Analysis 2. Classical Approach 3. Technical Indicators
1. MAs 2. MACD 3. RSI
4. Market Cycles 5. Fostering your market view
and trading plan “Knowledge born from actual experience is the answer to why
one profits; lack of it is the reason one loses…”
- Gerald M. Loeb