Technical Analysis

Historical studies have shown that chart patterns are consistently repeated over time. Technical analysis is the art of recognizing specific patterns that are key to growth investing.

Look for Tightening Price Action Preceding a Breakout

The concept of tightening price action, lower highs and higher lows, along with volume declining, will often lead to a breakout that follows in the direction of the prior trend.

William Jiler in 1962 referred to this as a coil. Mark Minervini, in his book Trade Like a Stock Market Wizard, describes similar price action which he refers to as volatility contraction pattern (VCP). It is also known as a symmetrical triangle.

In this post I’ll show historical examples as well as recent breakouts and current setups. My focus here is on daily and weekly charts. With that said, take some time and look at various intraday charts, the same concepts apply.

Continue reading

Follow-Through Day Tutorial with Examples

When there is a market correction, it’s important to wait for a confirmation that an uptrend is underway before scaling back in. A follow-through day is the signal we are looking for.

Below is a short tutorial on how to determine when a follow-through day (FTD) has occurred. This includes the required rally days prior to an FTD as well as early signs a failure may occur. You’ll also find several annotated charts showing an index low, how to track the prerequisite rally and pinpointing where an FTD begins.

If you’d rather not get wrapped up with the specifics, you can follow me on Twitter where I’ll post as soon as we have a FTD.

Many thanks to Mike Webster for clarifications and updates.

Continue reading

David Ryan on the Telltale Signs of a Correction

On a recent IBD Investing podcast, Irusha Peiris and David Ryan walked through a number of clues that may indicate we are heading into a correction. The chart of QQQ was used as many of recent leaders can be found in the Nasdaq 100.

I annotated a chart of the key points and added some additional notes as it relates to the moving averages and RS Line.

It’s important to note, these same principles apply regardless of the index, so I’d recommend keeping this information handy for future reference.

Continue reading

What is a Vertical Violation?

Given the sharp correction in the Nasdaq over the past two days, this post seems timely…

Based on his own research and market analysis, Chris Gessel noticed something unique about a specific type of market correction. After further study with Justin Nielsen, they found that a significant break of the 50-day and/or 200-day moving averages often lead to a period of under performance, which could include a continued decline, an extended period of volatility and/or failed follow through days.

Continue reading

Swing Trade Setup in a Cup with Handle

I want to share with you a swing trade setup that I think you’ll find interesting. Actually, the setup itself is nothing out of the ordinary as far as a swing trade goes, it’s where the setup occurs that makes for something intriguing. Let me explain…

A common swing trade setup is to buy on an upside reversal, often after a stock has pulled back to a moving average or another point of support. What I’d like to point out is if you see an upside reversal in the handle of a cup with handle pattern, you may have an opportunity to ride the stock higher with any momentum generated by a move through the pivot.

Continue reading