Jul 13

MACD Technical Indicator

Posted in Technical Analysis

How to Find and “Hook” Potential Trade Setups
A Free Lesson on How to Combine Technical Indicators with Elliott Wave Analysis

Trading using technical indicators — such as the MACD, for example, Moving Average Convergence-Divergence — can do one of two things: help you or hinder you.

Using them as a forecasting method alone can be about as predictable as flipping a coin. But when you combine them with other forms of technical analysis (i.e. the Wave Principle), the same MACD can be your new best friend.

Technical indicators are meant to do exactly what the name implies: “indicate” that a buy or sell signal may be in place. (Don’t confuse “indicate” with “guarantee”: They are not called “technical guarantors” for a reason.)

Elliott Wave International’s Futures Junctures editor Jeffrey Kennedy shows you how he uses technical indicators to his advantage in his FREE eBook, The Commodity Trader’s Classroom:

“Rather than using technical indicators as a means to gauge momentum or pick tops and bottoms, I use them to identify potential trade setups.”

Jeffrey goes on to describe his favorite indicator, the MACD:

“Out of the hundreds of technical indicators I have worked with over the years, my favorite study is the MACD [which] uses two exponential moving averages (12-period and 26-period). The difference between these two moving averages is the MACD line. The trigger or Signal line is a 9-period exponential moving average of the MACD line.”

Figure 10-1 gives you an example of the MACD indicator in Coffee futures.

Coffee - December Contract Daily Data

One of the signals of a potential trade setup that the MACD often introduces is what Jeffrey refers to as the Hook. Here’s another quote from the free eBook:

“A Hook occurs when the MACD line penetrates, or attempts to penetrate, the Signal line and then reverses at the last moment. In addition to identifying potential trade setups, you can also use Hooks as confirmation. Rather than entering a position on a cross-over between the MACD line and Signal line, wait for a Hook to occur to provide confirmation that a trend change has indeed occurred. Doing so increases your confidence in the signal, because now you have two pieces of information in agreement.”

Figure 10-4 gives you an example of the Hook at work in live cattle futures. 

Live Cattle - December Contract Daily Data

“A Hook should really just be a big red flag, saying that the larger trend may be ready to resume. It’s not a trading system that I follow blindly. All I’m looking for is a heads-up that the larger trend is possibly resuming.”

Learn more about other technical indicators that you can use to your advantage, as well as the other important lessons in the FREE 32-page eBook, The Commodity Trader’s Classroom. It is filled with actionable lessons you can apply to your trading strategy. Download it right now, instantly, when you create your free Club EWI profile.
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Jul 9

Trading With the Elliott Wave Principle

As Simple As A-B-C

Two resources from Elliott Wave International can help you get started
When Ralph Nelson Elliott discovered the Wave Principle nearly 70 years ago, he explained how social (or crowd) behavior trends and reverses in recognizable patterns. You can learn to identify these patterns as they unfold in the financial markets, and use them to help anticipate where prices will go next. Elliott Wave International has developed a free comprehensive online course — The Elliott Wave Tutorial: 10 Lessons on the Wave Principle — which describes these patterns and explains how they relate to one another. 

To use the Wave Principle as you analyze the markets, you need a basic understanding of the Elliott method — the rules and guidelines, the literal shape of individual waves, even when the larger trend may turn.

To get you started, we’ve included an excerpt from the free Elliott Wave Tutorial, adapted from Elliott Wave Principle by Frost and Prechter, and a short video clip from the live presentation, Tips from a Pro.

__________________________

Here is your quick lesson excerpted from The Elliott Wave Tutorial:

In his 1938 book, The Wave Principle, and again in a series of articles published in 1939 by Financial World magazine, R.N. Elliott pointed out that the stock market unfolds according to a basic rhythm or pattern of five waves up and three waves down to form a complete cycle of eight waves. The pattern of five waves up followed by three waves down is depicted in Figure 1-2.

One complete cycle consisting of eight waves, then, is made up of two distinct phases, the motive phase (also called a “five”), whose subwaves are denoted by numbers, and the corrective phase (also called a “three”), whose subwaves are denoted by letters. The sequence a, b, c corrects the sequence 1, 2, 3, 4, 5 in Figure 1-2.

At the terminus of the eight-wave cycle shown in Figure 1-2 begins a second similar cycle of five upward waves followed by three downward waves. A third advance then develops, also consisting of five waves up. This third advance completes a five wave movement of one degree larger than the waves of which it is composed. The result is as shown in Figure 1-3 up to the peak labeled (5).

At the peak of wave (5) begins a down movement of correspondingly larger degree, composed once again of three waves. These three larger waves down “correct” the entire movement of five larger waves up. The result is another complete, yet larger, cycle, as shown in Figure 1-3. As Figure 1-3 illustrates, then, each same-direction component of a motive wave, and each full-cycle component (i.e., waves 1 + 2, or waves 3 + 4) of a cycle, is a smaller version of itself.

Every wave serves one of two functions: action or reaction. Specifically, a wave may either advance the cause of the wave of one larger degree or interrupt it. The function of a wave is determined by its relative direction. An actionary or trend wave is any wave that trends in the same direction as the wave of one larger degree of which it is a part. A reactionary or countertrend wave is any wave that trends in the direction opposite to that of the wave of one larger degree of which it is part. Actionary waves are labeled with odd numbers and letters. Reactionary waves are labeled with even numbers and letters.

Watch this video clip from Tips from a Pro for more on Elliott waves:

EWI’s Chief Currency Strategist Jim Martens explains how learning to use Elliott waves can be as simple as counting to 5 and knowing your A-B-Cs.

Learn about the Elliott Wave Principle and how applying it to your market analysis can improve your investing and trading. Take the entire online course — The Elliott Wave Tutorial: 10 Lessons on the Wave Principle — FREE! 

Click here to access the 10 Lessons.

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Jul 8

Not a Bear Among Them

Posted in Stock Market

One of the greatest stock market tops is probably behind us, and it is now worth to try a short position on S&P 500. Accumulation distribution index has been ringing the bells for the last 4 months as big money was exiting while the stocks made new highs. Optimism is wide spread. Cash positions of institutional investors only began to reverse from record low levels. Recovery talk has been all the rage, yet jobs and housing are stubbornly depressed state despite QE2. We would like to remind yet another early call from Prechter who has predicted a big rally after March 9, 2009 bottom and turned bearish soon after DOW 10000. 2000 DOW points later, are we at the top that Prechter has been warning us about? Let us revisit an old video interview with Prechter and try to understand the extreme market price levels we are at.

December 30, 2010
Prechter on CNBC – “Not
a bear among them”

Robert Prechter of Elliott Wave International and Don Luskin of Trend Macro
share their opposing market views with CNBC host Larry Kudlow. (Note:
Prechter’s interview starts about four minutes into the interview).

Get
Up to Speed on Robert Prechter’s Latest Perspective — Download this
Special FREE Report Now.

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Jul 4

Stock Market and Quantitative Easing

Posted in Stock Market

Do news and events dictate the market direction? Is there an obvious cause and effect relationship between major news, economic events and the stock market action? According to socionomic theory, news and events do not direct the markets. But let’s see a chart below that tells it as it is.

What Will Happen to the Stock Market When QE2 Ends?

The second round of the Federal Reserve’s quantitative easing program, better known as QE2, will expire this week.

The QE2 policy was officially announced on November 4, 2010, and has been widely credited with subsequent stock market gains. And now, according to rumors, the end of this “experimental” program will kill the stock rally — with potential impact across all markets.

Let’s think about that.

For starters, there is little “experimental” about QE2. As EWI’s November 2010 Elliott Wave Financial Forecast pointed out to subscribers, “In Japan, the very same remedy the U.S. is applying today — rate cuts followed by quantitative easing — finds its stock market still down more than 75% from its December 1989 peak.”

Also, this chart, from EWI president Robert Prechter’s January 2011 Elliott Wave Theorist, shows “the effect” the first round of quantitative easing (QE1) had on the market:

Stocks Crashed Right Through QE1

But investors have short memories. And even many of those who remember how powerless the Fed was during the 2007-2009 crash are convinced that “it’s different this time.”

What do the facts and the evidence say? Read the expanded, 2011 edition of our popular free Club EWI resource, The Independent Investor eBook.

From the very first pages, the charts and graphs will show you that the Fed’s QE programs are far less powerful than is commonly presumed.

All you need to read this important 118-page eBook online now is to create a free Club EWI profile. Here’s what else you’ll learn:

  • Why QE2 was a major tactical error
  • Why interest rates don’t drive stock prices.
  • Why rising oil prices are not bearish for stocks.                      
  • Why earnings don’t drive stock prices.
  • What inflation has to do with the prices of gold and silver
  • Why the problem with the Fed is its very existence.
  • Why central banks don’t control the markets.
  • MUCH MORE

Keep reading this free report now — all you need is a free Club EWI membership.

 
Club EWI’s free “Independent Investor eBook, 2011 Edition” offers you an unorthodox view of the Fed’s quantitative easing program
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