StockFetcher Forums · General Discussion · Importance of longer term analysis<< 1 2 3 4 >>Post Follow-up
maxreturn
745 posts
msg #54111
Ignore maxreturn
modified
8/16/2007 12:23:07 PM

Analysis of this Quarterly SPX chart was one of the primary reasons I started buying puts. Look at the massive divergences. The SPX rallied only 2.03 points above the 2000 high before selling off.

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maxreturn
745 posts
msg #54113
Ignore maxreturn
modified
8/16/2007 12:34:55 PM

Even more ominous. Look at this Yearly chart! GADZOOKS!

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astroanalyst
48 posts
msg #54121
Ignore astroanalyst
8/16/2007 3:15:54 PM

Maybe I'm missing something, but I'm not quite seeing the massive divergences, at least in terms of the way I understand divergence. I'm looking at daily and monthly charts, but focusing primarily on the monthlies...

This latest correction does appear to testing the long term bullish trend with meaningful support around 1370, IMO...FYI, for anyone interested in learning more about divergence, the following link proved to be helpful:

Divergence Tutorial

HTH...



maxreturn
745 posts
msg #54138
Ignore maxreturn
modified
8/17/2007 8:12:27 AM

With all due respect Astro...I know what divergence is. As I pointed out on the quarterly and yearly charts price has reached marginal new high while the MACD (at least on the quarterly charts) has not. In addition, the RSI is showing pretty clear divergence. This analysis is not necessarily to imply that this means a full blown long term bear market is in the offing. I use other methods to confirm this. BUT...certainly a selloff should have been expected. At the least a trader should not have been expecting much more upside after this price action. At the most, he/she could have realized a very high reward/risk trade could have been taken, which I did.

curmudgeon
103 posts
msg #54141
Ignore curmudgeon
8/17/2007 11:29:55 AM

In my experience with oscillators divergences usually indicate that the lookback period is not set correctly, which in itself begs the question: "why use an oscillator?". All indicators are a derivative of price and seek to "distill" some sort of information from the price action and present it in a more usable form. The problem with oscillators, especially is that, well, they oscillate. Why not just based your decisions on more reliable data...the price itself?

nikoschopen
2,824 posts
msg #54146
Ignore nikoschopen
8/17/2007 1:06:47 PM

Why not just based your decisions on more reliable data...the price itself?

That's what technical analysis in its pure form is all about. Unfortunately, we have too many self-labeled techies but not enough purists.

curmudgeon
103 posts
msg #54152
Ignore curmudgeon
8/17/2007 1:57:36 PM

A glaringly obvious problem (especially in the CMT course material) is that if you subscribe to the Idiot Wave THEORY, which attempts to model markets in a repeating fractal-like pattern, then how does one accomodate cycle lengths that are of different lengths (wave 1, 3 and 5) in the lookback of an oscillator? How can you trust the indicator if you know before hand that it isn't in tune with the market (according to THEORY).

maxreturn
745 posts
msg #54169
Ignore maxreturn
8/17/2007 10:41:06 PM

Curmudgeon...Your're absolutely correct about placing more importance on price action than on indicator divergence. After all, the market declined from 1552.87 from the 2000 highs to the 768.63 low in 2003. I guess the whole point of my post was to make the make the trader aware of context, which I think it is all to easy to forget. That is...it is absolutely critical to know where price is in a historical context (monthly, quarterly, yearly charts). I STILL contend is is important to confirm price action by using other indicators (technical, breadth, sentiment). A "weight of the evidence" approach which gives the trader more confidence to pull the trigger.

maxreturn
745 posts
msg #54170
Ignore maxreturn
8/17/2007 10:55:49 PM

niko...If you're referring to me as one of the "self labelled techies" you couldn't be more off base. As I just pointed out to Curmodgeon, I place more emphasis on price action but also technical analysis, breadth analysis and sentiment analysis to confirm my entry/exit decisions. And I'm doing just find thank you. You know...now I'm beginning to understand why there doesn't seem to be a lot of people anxious to share their knowledge on these forums. The whole intent of my posting was to basically point out the importance of looking at long term charts before making shorter term trading decisions. Not ONE complimentary post. All negative.

curmudgeon
103 posts
msg #54172
Ignore curmudgeon
8/17/2007 11:43:45 PM

Pay me no mind max, I'm a natural born a-hole. I just thought a little debate on divergence might help some newbs who might be reading.

StockFetcher Forums · General Discussion · Importance of longer term analysis<< 1 2 3 4 >>Post Follow-up

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