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 ...

During a market downturn the VIX is a commonly referenced indicator. The value of the VIX is derived from the price of out-of-the-money S&P 500 (SPX) put options and will increase as SPX declines. Given this behavior in the VIX, it can be used as a valuable trading tool  on its own and in combination with other indexes or indicators . For example, one of the most common strategies  is buying put options on the SPX when prices begin to top or decline. In other words, the VIX can be used for a simple equity market hedging strategy . This buying of SPX put options will cause the implied volatility to rise, resulting in higher premiums for the options. Since the VIX measures implied volatility of SPX index options, it will move inversely with the SPX. That is, as prices fall there is more put option buying which results in higher VIX levels. Not only does VIX increase as SPX declines, but it also has a tendency to increase more quickly the faster and farther the S...

Harry Markowitz, the founder of Modern Portfolio Theory, once said that “diversification is the only free lunch.” Decades since his seminal work in developing mean-variance efficient portfolios that maximize return for a given level of risk, this adage still holds true in most market environments. It is common practice for fund managers to diversify among asset classes based on Markowitz’s findings. However, diversification with his methods can be taken one step further .  While diversifying your account in all suitable asset classes is worthwhile, a trader can also diversify an account with different trading styles which will create uncorrelated return streams. For example, Perry Kaufman suggests that a well-diversified trader has an ideal mix of three, maybe four, unique strategies. Generally speaking, these three trading styles can be categorized as Trend Following , Mean Reversion , or  Pattern Recognition . Furthermore, styles can be differentiated by time horizon....

Candlestick charts can offer a unique perspective for charting market direction and sentiment. Developed in Japan, these charts represent price action with a figure that looks like a candle. That is, the price depiction has a body and one or two wicks. The body of a candle can either be open or closed representing either a higher or lower close for the specified time period, respectively. Open candles are represented with a light color and closed candles are displayed with a darker color. The extremes of the body represent the open and the close which can sometimes coincide with the high or low for the time period being analyzed. In such a case, there would be no wick, or straight line extension, from the candlestick. Otherwise, the wicks represent the high or low for the specified time period. Candlestick charting offers an easy way to quickly assess the market trend . Thomas Bulkowski identified one particular pattern  that can be used to identify a possible end of a trend a...