Category: Your Money

Everybody (and their mother) is getting out of the Euro

Maps shows a group of countries known as the P...

Image via Wikipedia

Not to kick a man when he is down, but the news about institutions, depositors and finally money market funds getting rid of Euros have been piling up. US funds have been cutting exposure to both European banks as well as PIIGS debt. Even a German holiday company (TUI) started preparing for a Euro pull-out. Warren Buffet thinks the EU cannot be saved in its current form and Soros has been a hater all along.

The latest meme in this train-wreck is that PIIGS under pressure in the bond-market should offer gold as their collateral! If it worked for India in the 90’s, it should work for Europe in the 10’s, yeah? Even though I was ten at that time, I still remember the popular outrage when India shipped 47 tons of gold to England. What a reversal of fortunes it would be if Europe were forced to ship their gold to China. Italy holds about 2,400 tons of gold in its vaults, I hope the Chinese have built a big enough room to hold all that metal.

Sunder’s List

Essential reading this AM:

While we debate whether Kingfisher Airlines needs to be bailed out, here’s something that we should consider:

How Iceland survived the fire

I guess women are scared to have babies in this economy. US birthrate falls to 11-year lows: Bloomberg

Tech slowdown in the pipeline? Here are a bunch to keep the outsourcers awake:

  • US Governments cutting IT spending: Bloomberg
  • INFY may miss the top end of its estimates: WSJ
  • NTAP seeing “unexpected weakness”: SA

China seeing a global slowdown? MarketWatch

Amidst all this, lets not forget that at the end of the day, stick to the rules.

Follow me on twitter: @SunderStockViz

Technical Analysis of the Financial Markets: Ch 5

This is a review of the fifth chapter of John J. Murphy’s Technical Analysis of the Financial Markets.

Major Reversal Patterns

The 5 most commonly used reversal patterns are:

  1. Head & Shoulders
  2. Triple Tops & Bottoms
  3. Double Tops & Bottoms
  4. Spike (or V) Tops & Bottoms
  5. Rounding (or Saucer)

Things to keep in mind while looking at reversal patterns:

  1. A prior trend should exist (the market should have something to reverse)
  2. The first sign of impending reversal is the breaking of a trendline
  3. The larger the pattern, the greater the impending move
  4. Topping patterns are usually steeper and more volatile than bottoms
  5. Bottoms have smaller price ranges and take longer to build
  6. Volume is more important on the upside

We will examine each of the 5 patterns above in subsequent posts.

Technical Analysis of the Financial Markets: Ch 4

Last part of the review of the 4th chapter of John J. Murphy’s Technical Analysis of the Financial Markets.

Reversal Days

imageA reversal day happens either at the top of an uptrend (top reversal day) or at the bottom of a downtrend (bottom reversal day). A top reversal day is the setting of an intraday high for the uptrend followed by a close below the previous day’s close. A bottom reversal day is the setting of an intraday low for the downtrend followed by a close above the previous day’s close. The wider the intraday range, the higher the probability of a near term trend reversal.

A reversal pattern can form on monthly and weekly charts and usually bears greater significance compared a reversal day.

Price Gaps

Price gaps are areas in the chart where no trading has taken place. There are three types of gaps:

  1. Breakaway: the penetration of a resistance level usually occurs through a Breakaway Gap and signifies a major move. It occurs on heavy volume and upside gaps usually act as support levels. Its important that prices do not fall below these gaps during an uptrend.
  2. Runaway: formed after a trend is in play for a while (usually the halfway point), these are prices leaping upward on moderate volume. If these gaps are filled, then its usually a sign of weakness.
  3. Exhaustion: as the name suggests, it usually occurs at the end of a trend. After the identification of both the Breakaway and Runaway gaps, one should start expecting the Exhaustion gap. The filling of this gap during an uptrend is a bearish signal.

The Island Reversal Patternimage

Sometimes, after an upward exhaustion gap, prices trade within a narrow range before gapping to the downside. This leaves the few days of price action looking like an “island” and indicates a trend reversal that needs to be confirmed with the overall trend structure.

 

Up Next: Chapter 5: Reversal Patterns