In looking at chart patterns, I am seeing more chart patterns in what Stan Weinstein calls stage 1 chart patterns.
Weinstein breaks chart patterns into four groups:
Stage 1 is the bottom or basing period
Stage 2 is the uptrend stage
Stage 3 is the topping stage
Stage 4 is the breakdown or downtrend.
LOTM refers to moving averages frequently to attempt and identify which stage of activity a stock might be in. In general a stock (or commodity) that is above its 50-day moving average is in a short term rising trend and a stock whose price is below its 50-day moving average is in a short-term declining trend. To help identify longer term rising or falling trends the same approach is taken using the 150-day or 200-day moving average. This is a basic approach but also has power in its simplicity.
Compare the chart on Gold (GLD) right now with the chart above.
It is too early to say gold has topped and is in a declining trend but at the same time, the double top is a troublesome development. Conversely, a potentially positive signal for stock prices as gold, oil, the US dollar and stocks have interconnected relationships. Gold and stocks often move in opposite directions.
A chart of the S&P 500 below shows that the recent volatility has been frightening but each sell off has found support at a higher price. The mirror of my comment on Gold, while it is too early to say the stock market is in a rising trend, it is encouraging to see the higher lows and the consolidation of the sell-off from the May and July highs.
At this time, I am more focused on chart patterns and news from individual companies and not so much on the macro news coming out of Washington and Europe. Companies earnings have been out-performing and stock prices will turn positive sooner than the news headlines.
I have already heard Pimm Fox of Bloomberg TV asking guests “with the news so negative why are we starting to see positive developments in share prices?” This was asked in a head scratching way.
LOTM is anticipating a year-end rally.