The article below is from my site dedicated to investments and markets, Investment Poetry, posted earlier this week...
Always helpful to circumscribe the market’s oscillations to keep those oscillations from surprising you. For example, the Nasdaq Composite/COMPX, in which I identify several items...
1) Support and resistance. Focus on the line at ~2600 – former resistance becomes support, and now, possibly, resistance again;
2) Measured moves. The distance in prices (~2600 to ~2875) is the same distance to 2325 (from ~2600), and the level from which the market bounced. (And should the COMPX break down beneath ~2325, the next measured move counts to ~2050, the lowest trend line drawn. NB: the points of support and resistance clustered at the price level.)
The takeaway is that measured moves, in tandem with support and resistance - and other technical studies not shown - identify turning points, however ephemeral. The second takeaway is that as price crosses the channel to seeming resistance at ~2600, risk increases. (“Seeming” means presumed resistance until proved otherwise, which would require a close well above 2600.)
Of course, unless you trade the indices, you do not buy the market; you invest in individual securities. Perform a similar analysis for your favored investment opportunities, and then overlay those charts with the market’s chart to identify the few opportunities that act stronger than the market. Many such investment opportunities exist today, as always.
-- David M Gordon / The Deipnosophist
Labels: Chart analysis, Market analyses