A period of consolidation has investors worried that the Dow's long-term uptrend has run its course, but charts suggest otherwise.» Read More
Walloped is a good old Australian word which defines a cowardly attack or beating. Originally it applied to a beating at the hands of the police, or ‘wallopers’ who were recruited from the ranks of ex-convicts during the 1850’s gold rushes. Their favorite targets were the small gold miners on Victorian gold fields.
The term has been given new currency, but with the same original meaning Sunday, when Australia's Prime Minister Kevin Rudd unveiled a 40 percent resource “super profits” tax that would take effect in 2012 and would give the country one of the highest mining tax rates in the world. This reflects the Australian tradition of persistent persecution of success and gives new meaning to the term ‘sovereign risk’ because the terms of business have been so radically altered by Government decision.
There are three questions of particular interest. First, did investors see this coming and is it shown in the price charts? Second, what are the immediate downside targets for any price retreat. Third, what are the chart conditions which suggest the immediate reaction is an over-reaction?
We use Rio Tinto Australia as a proxy for large Australian miners.
Samsung Electronics,world's top maker of memory chips and flat screen TVs, reported record quarterly results on Friday, giving its shares a nice boost.
But whether the results were going to be good, bad or indifferent, the stock was always going to continue it's uptrend, based on analysis of its stock chart.
The reason for this is the stock's inherent steady existing trend behavior.
When the bears are right, it could sometimes mean a great opportunity for the bulls. This seems to be the case for Goldman bulls, at least according to technical analysis.
Shares of General Electric have had a good run in recent months, tracking the overall uptrend on Wall Street. The stock was up 19.6% in the first quarter, with much of the increase coming in the last month, when the stock surged from $15.90 to $18.20, a possible signal of confidence by investors.
A check of its weekly stock chart suggest the company will continue to see gains going forward.
There are two important factors which suggest the earnings release will confirm the existing trend behavior in GE. The first is the pattern of price behavior and the second is the pattern of trend strength. (GE is the parent company of CNBC.)
One of the most dangerous market myths is that the market always rises over time.
Believers in this myth would trot out historical charts that have been reconstructed from the middle of the 18th century. And sure enough, the long term trend marches inexorably upwards. Even drammatic market crashes like that of 1929, 1987 and the tech wreck of 2000 all become just little blips in this overall magical rising trend.
To many investors, this underscores the buy-and-hold strategy. Just buy-and-hold and the market will bring you a windfall eventually. Right?
Wrong. Unfortunately, this is a pure myth and simply untrue.
The truth is that it's market index always rises, and not the market. The market index rises because the index only includes winners. This is called survivor-bias. The components of the index change on a regular basis, when market conditions warrant.
The Australia's S&P ASX 200 index, for example, is rebalanced every quarter by Standard and Poors' who compiles the index. Just in the last quarter, three stocks were dropped from the index because they were the worst performers. They were replaced by three others which were better performers.
When losers are dropped and winners added, it's no wonder that the market (index) always rises. Even blue chip stocks can be cut out from the list if they fail to perform. Too bad if you happen to own them and plan to keep them for the long haul.
Japan's benchmark Nikkei Average has hitting 18-month highs in recent days, prompting market analysts to predict that the index would breach the 12,000 mark by the end of this month.
The short-term gyrations of Portuguese tinkering, Irish blarney, Italian bluster, Greek debt and the care-free Spanish (PIIGS) have a cumulative impact of the euro-dollar relationship.
The weekly euro-dollar chart gives a better view of the strategic perspective. Against this chart we must also balance the degree to which the greenback's strength, as shown on the U.S. dollar index, is increasing the pressure on the euro as distinct from pressure applied by the Euro zone PIIGS.
A simple analysis of the Euro-Dollar chart has these features.
Oil prices are poised to rise higher, but be ready to stomach volatility. An analysis of the its weekly chart shows the development of a broad upward sloping trading channel , in chart speak, which confirms this trend.
Oil prices, like most markets, rebounded strongly last year, in tandem with the global economic recovery. Towards the middle of 2009, however, while other key markets began to lose momentum and develop a trading band pattern, oil continued with its upwards climb within a trading channel.
There are several important features in its chart which underscores the commodity's bullish trend.
Cathay Pacific's posted its best six-month profit in two years on Wednesday, sending its shares up more than 3 percent.
While it's easy to attribute the Hong Kong flagship carrier's recent stock gains to its improving earnings, a closer look at the firm's stock chart shows a broad cruising pattern that's unlikey to be significantly altered by earnings releases.
Markets start to incorporate news when it's just rumor and the information is quickly built into the price behavior.
This makes stock prices best summary of all the information that is known, guessed at, speculated about and suspected. However, this doesn't mean the price is absolutely 'correct' as it combines intelligence and ignorance, both of which are not always in equal measure.
Which, in a roundabout way, brings us back our chart focus of this week: Hong Kong-listed HSBC. The chart shows four technical features, all of which anticipated the bank's disappointing earnings report on Monday.
Daryl Guppy is an independent technical analyst who appears frequently on CNBC Asia.