This Crash Alert Indicator Warns of More Downside in Stocks

Many analysts have indicators that warn of a bear market. But many of these indicators don’t work as well as expected. The biggest problem with a bear market indicator is the potential for false signals. That’s honestly a problem with many of the widely followed tools. Even the yield curve, one of the best predictors of a recession and a potential bear market is prone to this problem. Economists often joke that the yield curve has predicted twelve of the last six recessions. Even when the yield curve is right, the problem is that there is too much lead time. And, that is a large problem ...
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The Charts Offer a Surprising Message on Tesla

Tesla (Nasdaq: TSLA) is the company that some investors and analysts have an emotional relationship with. Some love the company and others hate the electric car maker. Both reactions seem to be due, in large part, to reactions to the company’s CEO Elon Musk. Musk has been the CEO and chairman of the Board of Directors but agreed to step down in a recent settlement with the Securities and Exchange Commission (SEC). The SEC began investigating Musk after one of his tweets attracted the interest of investors, and regulators. The terms of the settlement would be in the best interests of inve...
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The Odds of a Rate Hike and How to Play It

Over the past few years, arguably the Federal reserve has been increasingly important in the stock market. The Fed has always been important. But its current role seems to prop the stock market up. It doesn’t do so by buying stocks but instead, the Fed uses policy tools. The Fed Is Not a Stock Market Investor To begin with, it is important to emphasize that the Fed does not own stocks directly. According to the Federal Reserve Bank of San Francisco: Federal Reserve System does not hold corporate stocks, but it does hold government securities. The Federal Reserve's securities portfolio ...
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Using Momentum Indicators to Forecast the Stock Market

Momentum indicators tell us a great deal about the stock market. These indicators can be a useful forecasting tool. But that might not be the way all investors look at these indicators. Momentum indicators are designed to measure the strength of the trend. They are usually thought of as short term trading tools. This makes sense because momentum measures the strength of a move and if a stock moves too fast, or shows too much strength, a reversal should be expected. That standard interpretation of momentum indicators is based on the fact that stock prices tend to exhibit mean reverting be...
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This Old School Chart Says New School Stocks Are In Trouble

Point and figure (P&F) charts are among the oldest trading tools. They were in use by the late 1800s and they are still widely used by traders. They are valued by traders because they can easily be used to identify the trend and to develop price targets and trading strategies. We have written about the construction and fundamentals of the P&F chart and we will refer readers to the previous article for a review of the basics. That article can be found here. In this article, we will focus on what the charts tell us about the current state of the stock market. Horizontal Counts The f...
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The Charts Show to Trade This Market

Chart patterns show the emotions of traders. Technical analysts combine the price action seen on charts with indicators designed to measure momentum and other characteristics of the market. Combined, these techniques can provide a trading strategy. To begin the development of a trading strategy, traders can look at a price chart of a broad stock market index such as the S&P 500 or the Dow Jones Industrial Average. Price trends in indexes are highly correlated with each other so traders can benefit from an analysis of any major index. The Chart Shows a Down Trend The S&P 500 Index ...
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Here’s Why Chart Patterns Work

Some traders look at charts and see actionable information. Warren Buffett is not a member of that group. Buffett has admitted that he tried to use technical analysis, the broad field of investment analysis that includes charts. He reportedly joked in a speech that, "I realized that technical analysis didn't work when I turned the chart upside down and didn't get a different answer.” Another skeptic is Burton G. Malkiel, a well respected economics professor at Princeton University and the author of A Random Walk Down Wall Street. Malkiel tested the usefulness of charts by providin...
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How Stocks Move After Elections

Elections are important to the markets. After all, the Presidential election seems to lie at the heart of the Presidential cycle, a four year pattern technical analysts identified years ago that continues to provide useful insights to this day. But, as Warren Buffett notes, “If you mix politics and investing, you’re making a big mistake.” It’s important for investors to forget how they feel about politics and look at the market data to make decisions. The facts related to the election are now bullish. This is only one factor that investors should consider when making trading decision...
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Double 7s Could Help Short Term Traders Profit

It might be a bear market. But, that does not mean prices will go straight down for the next few months. Even in bear markets, there are times when prices move higher. This is true in even the worst bear market. The chart below shows what might be the worst bear market in U. S. history. It’s the Dow Jones Industrials Average from 1929 to 1932. The index fell about 90% over that time. At the bottom of the chart is a zig zag indicator. This indicator reverses direction whenever prices move at least 10% from a high or low. From the peak in 1929 to the bottom in 1932, even as the ind...
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Ichimoku Clouds Hang Over the FAANG Stocks

There are a number of ominous signs in the current stock market. Among those signs is the fact that clouds are hanging over the stocks that led this bull market. A breakdown in the leadership of the stock market could be an indicator that the bull market is near an end. The leaders in the current bull market have been the FAANG stocks – Facebook (Nasdaq: FB), Amazon.com (Nasdaq: AMZN), Apple (Nasdaq: AAPL) Netflix (Nasdaq: NFLX) and Alphabet (Nasdaq: GOOGL), the parent company of Google. The chart of FB below demonstrates the clouds over these stocks. Cloud Charts Ichimoku Clou...
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