A Discounted View

The price of ResMed Inc. (RMD) recently broke out of a resistance barrier on multiple timeframes. First, the monthly chart shows a clear break of resistance near the $60 level. Historically, this behavior in RMD and other stocks is constructive for a long set up . You can see from the past 10 years of monthly price data that RMD has a tendency to trend, consolidate for a while, and then trend again . At the point of breakout, a long position was unconfirmed by MACD, a trend indicator , but with further price improvement it exhibited a bullish crossover. Additionally, comparing RMD’s lows in its most recent range bound consolidation with MACD-H confirms its advance leading up to its breakout. Second, after zooming in one order of magnitude  shorter to the weekly time frame you can see a more granular view of the breakout from the monthly chart. From a trend perspective  we now see the price above its 40-week moving average ( 200SMA ) and a fairly consistent bottom ...

Since Crude Oil began its long-term decline in the early Fall of 2014, the commodity has yet to find meaningful support and forge a sustained reversal. However, the most recent lows in January and February 2016 appear to have formed a double bottom. This pattern can be constructive for future price action . In Technical Analysis a double bottom is a price pattern that forms after a sustained downtrend makes a low, reverses higher, then retraces back to around the previous low, and finally proceeds to move higher again. The breakout from a double bottom is confirmed when the price moves off the second low to a point that is higher than the reversal peak from the first low. Sometimes the double bottom may be symmetrical and other times there can be some asymmetry between reversals. Currently, Crude Oil is exhibiting asymmetry in its double bottom. Thomas Bulkowski coined the different price bases “Adam” and “Eve” depending on the shape of the move. “Adam” reversals are typically...

Despite the title of this post, this is not another analogy between long-term investing and the story of the tortoise and the hare. Instead, in the trading world a Turtle is known as a protégé of Richard Dennis and William Eckhardt, who ran a Commodity Trading Advisor (CTA) business in Chicago during the 1970’s and 1980’s. These two traders conducted a trader training experiment based on disparate opinions on whether or not trading was an innate skill or could be developed. After the first round of successful training, another round of testing was completed with similar results. That is, the Turtle trader trainees were able to trade profitably using the set of rules taught by Dennis and Eckhardt. One of the trainees was Jerry Parker who went on to found and run Chesapeake Capital Management for the last few decades. His firm specializes in medium to long-term Trend Following  trading principles that he learned while in the Turtle program. In a recent interview Parker highlight...

“You always want to be with the predominant trend. My metric for everything that I look at is the 200-day moving average.” – Paul Tudor Jones Being able to determine the market’s primary trend will put the odds in your favor to properly position your portfolio for future events. There are many ways to accurately identify a trend, however using the 200-day moving average* is one of the simplest yet most effective strategies. In fact, most Trend Following firms employ trading strategies that take an entry and, possibly, an exit based on a specified percentage close above or below the 200-day moving average, respectively. Moreover, the 200-day moving average can be an effective trading signal for all markets since Trend Followers are typically registered as Commodity Trading Advisors (CTA’s) that have exposure to equities, fixed income, currencies, as well as commodities. Additionally, the 200-day moving average has been an effective signal throughout many market cycles. One s...

After the August 2015 sell-off the broad-based indexes found support and pivoted higher before month-end. However, by the latter half of September 2015 more selling pressure came into the market pushing the price of the S&P 500 Index (SPX) down to a near retest of its August 2015 lows while moving the value of the Russell 2000 Index (RUT) to new lows.  Even though the price action of these two indexes differed, the behavior of each respective Moving Average Convergence Divergence (MACD) Indicator was the same. Specifically, both MACD’s formed a higher low in late September 2015 after the August 2015 low was formed. Given the aforementioned similarities, MACD conveyed a powerful underlying message. In the case of RUT we observe that divergence formed between the lows of the price and the lows of the MACD lines. That is, as RUT formed a lower-low by the end of September 2015 its MACD was making a higher-low which is indicative of future price strength. MACD is categorized as a ...