Archive for the ‘Technical Analysis’ Category
Thursday, October 26th, 2006 |
When first posted about one of my stock preferences, Southern Peru Copper (PCU), it was October 12 and PCU closed the day at $49.02 USD.
It opened this morning, October 26, two weeks later at $53.01 USD. This is significant because it closed yesterday above it’s previous high.
Where technical analysis is concerned, a close above the previous high on large volume would indicate that there is little in the way of overhead resistance and the sentiment for a higher stock price is evident.
Southern Peru Copper has been making its gains in recent weeks on average volume. It would be prudent, in my opinion, to watch for the stock to close at a new high on volume significantly greater than the average volume. If the stock were to close significantly lower on larger than average volume, this would indicate a red flag and possible profit taking.
What are your thoughts on Southern Peru Copper?
Feel free to leave a comment and let me know if you think I’m off my rocker!
Posted in Stock Studies, Technical Analysis | 2 Comments »
Monday, September 25th, 2006 |
As promised, I have returned with more learning tools for technical analysis.
In the last post we covered, very quickly, some of the basics of technical analysis. I hope that you have been able to further research some of the investment philosophies and chart patterns that we talked about last time.
Today I want to show you one of the simplest technical analysis tools in action.
Moving averages
Moving averages play a role in technical analysis that is akin to watching the
headlines of the newspaper. It tells the investor what the market has been for a stock over a certain period of time. Moving averages are also used to smooth out price fluctuations, determine trends, and define support and resistance levels.
The most common moving average periods are 200 days and 50 days. As traders reduce their time span for trading a stock, they will look at shorter moving averages such as the 10 day or 5 day moving average to determine the most current momentum trend.
One of the most basic strategies for timing the market, or using technical analysis for trading stocks, is to watch for crossovers in the different moving averages. For instance, when a shorter moving average crosses a longer moving average, this is seen as a buy signal. The same holds true for the reverse situation if the longer moving average crosses the shorter moving average, we have a sell signal.
There are many more complicated technical analysis strategies and techniques, but several more complex techniques are formed from basic tenets of technical analysis such as moving averages.
I would like to point to Charles Kirk at The Kirk Report for a great example of this strategy and a chart that can be found here.
Stay tuned for more on technical analysis and how it can help you make money with dividend stocks.
Posted in Technical Analysis | 1 Comment »
Friday, September 22nd, 2006 |
In my last post I talked to you a about a dividend based investing strategy called the dividend growth model.
As promised, I am back today to give you a little background on technical analysis and stock trading. In order to get a grasp on technical analysis, we must first define some of the key terms that are used in the world of technical analysis.
Let us first start with the definition of technical analysis itself:
Technical analysis is based on the price patterns and charts of the stock and not it’s intrinsic value. A technical analyst believes that past price patterns and volume activity are indicative of future movement in the stock price.
Investopedia gives a very good example of the difference between fundamental investors and technical investors:
In a shopping mall, a fundamental analyst would go to each store, study the product that was being sold, and then decide whether to buy it or not. By contrast, a technical analyst would sit on a bench in the mall and watch people go into the stores. Disregarding the intrinsic value of the products in the store, his or her decision would be based on the patterns or activity of people going into each store.
Technical analysis involves the identification of different chart patterns that are developed through recognized price and volume indicators. Examples of the these various chart patterns include: Cup with Handle, Gap Ups, Gap Downs, Wedge Formations, Saucer with Handle, head and shoulders and many others.
Example of these patterns can be found at Market Stock Watch.
Many technical analysts use a variety of indicators in conjunction with each other in order to forecast the future direction of the stock price or trends. Some indicators that technical analysts use include moving averages, the relative strength line, new highs and new lows, point and figure charts and other indicators.
Obviously this subject is very intense and will need to cover more than one post.
In fact, an entire site dedicated to this subject would be appropriate.
I will be back later with more information and examples of technical analysis in action.
Enjoy!
Posted in Technical Analysis | 1 Comment »
