Entries by Aksel Kibar

VOLUME AS A CONFIRMING INDICATOR

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Volume is an important indicator that can be used to confirm certain price movement. It is always positive to see increasing volume when a stock is advancing. An advance on expanding volume is deemed more robust than an advance on contracting volume. Likewise, it is good to see an increase in volume during a breakout from a lengthy consolidation range.

Another way to use volume indicator is to confirm price action at market tops and bottoms. After a sharp sell-off, a spike in volume is usually considered a selling climax and suggests a possible bottom. If consecutive attempts to reach new highs are accompanied by lower volume it is usually considered a non-confirmation and forecasts a possible trend reversal.

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GLOBAL EQUITY MARKETS – September 30, 2017

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Uptrend remains intact for the emerging markets index. MSCI Emerging Markets Index cleared decade-long trend resistance at 1,015 levels and continues to trend higher. Strong support remains between 1,000 and 1,015 levels. Last one week's pull back is possibly finding support at the lower boundary of the year-long upward trend channel. Weekly candlestick pattern (hammer) on iShares MSCI Emerging Markets Index ETF (EEM) is featured in the following chart. Hammer candlestick pattern at support area can signal a bullish reversal.

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U.S. DOLLAR INDEX ETF (UUP)

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While still at the early stages, an important chart development might be taking place on the U.S. Dollar Index. In the second half of 2016, the U.S. dollar index breached the upper boundary of its consolidation range at 100.3 levels. The breakout was a bull trap (false breakout) and after couple of weeks, the price reversed back into the trading range and traveled sharply towards the lower boundary of the rectangle. In the beginning of September 2017, the price breached the chart pattern boundary on the downside. Those who are looking for a possible reversal of the downtrend on the U.S. dollar, should keep an eye on the 93 levels on the U.S. Dollar Index Futures chart and 24.15 levels on the US Dollar ETF (UUP) chart. A reversal above the mentioned levels can result in a bear trap (false breakdown) and turn out to be positive for the U.S. dollar in the coming months.

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GLOBAL EQUITY MARKETS – September 23, 2017

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Another Emerging Asia equity index broke out to new all-time highs. Philippines SE Composite index breached the 8,125 level after moving in a 2 year-long, wide trading range between 6,500 and 8,125 levels. The equity benchmark has been in a steady uptrend for the past year. Last two week's price action cleared the strong horizontal resistance and pushed the index to uncharted territory. Once a strong resistance, 8,125 level now acts as support. As long as the index holds above that level we will expect positive momentum to continue in the Philippine Stock Exchange. An efficient way to take advantage of the recent bullish technical development in the Emerging Asian country is through iShares MSCI Philippines ETF (EPHE.K) that is listed on the New York Stock Exchange. The chart below reviews the iShares MSCI Philippines ETF.

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PREMATURE & FALSE BREAKOUTS

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Below two paragraphs are taken from Peter L. Brandt's Diary of a Professional Commodity Trader - Lessons from 21 weeks of real trading.

"A premature breakout is different from an out of line movement in the sense that a premature breakout can close outside of a predrawn boundary line and even spend several days in breakout mode. Prices then return back to the geometric pattern. However, the initial breakout was only a harbinger of things to come, and within a few weeks a genuine breakout occurs. I call these subsequent breakouts secondary breakouts or pattern recompletions." - Ch 3, page 38, Identifying the trades and the trading vocabulary

"Unlike the premature breakout, which is followed by a genuine breakout in the same direction, the false breakout results in prices either developing a much larger pattern or strongly moving in the opposite direction. Some traders refer to false breakouts to the downside as a bear trap and false upside breakouts as a bull trap. This means that traders who normally position themselves in the direction of the initial price thrust get stuck on the wrong side of the market." - Ch 3, page 40, Identifying the trades and the trading vocabulary

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GLOBAL EQUITY MARKETS – September 16, 2017

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Global equity markets continue to remain in a steady uptrend. iShares MSCI All Country World Index, a benchmark for global equity market performance, continued to hold above its multi month-long upward trend line. The minor low and the upward sloping trend line are forming support at 66.15 levels. Uptrend is intact.

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H&S CONTINUATION

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Head and shoulder chart pattern can form as a continuation on price charts. In uptrends, a H&S continuation will be similar to a H&S bottom and in downtrends it will resemble an inverse H&S. The implications and interpretations continuation H&S are usually the same with reversals. Price objectives can be derived in the same way as it is calculated on a reversal chart pattern.

Head and shoulder continuation is one of my favorite chart pattern. A head and shoulder continuation that forms in an uptrend, will usually breakout to all-time highs once the chart pattern is completed. Breakout to all-time highs from bullish continuation chart patterns are usually reliable and powerful.

A head and shoulder continuation that forms in a downtrend will usually take out the minor lows and move in the path of least resistance. Price that is already in a downtrend is likely to accelerate on the downside (sometimes in a sharp fall) as it breaks down a well-defined horizontal support.

Below are some examples of H&S continuation chart patterns in up and down trends.

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GLOBAL EQUITY MARKETS – September 9, 2017

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I am not sure if Volatility index can be analyzed from a classical charting perspective but over the past few months, the VIX futures and since 2016, the CBOE Volatility Index respected important support/resistance levels. Irrespective of the headlines related to geopolitical tensions, the three different continuation future price charts of the Volatility Index (Oct, Nov, Dec) are showing signs of multi-month bottoming process. The importance of 15-16 area as a resistance can be seen on the Volatility Index and the VIX futures price charts. Last one month's price action arguably formed tight consolidations in the form of a pennant/symmetrical triangle below the important horizontal resistance. I think we should keep a close eye on these charts in the coming weeks. Completion of the month-long tight consolidation range can result in a breakout above the strong resistance area between 15 and 16 levels.

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