Up-to-date assessment is vital for meaningful chart comments. My copy deadline coincides with some of the important turns in the market. Much has happened since 27 January, when an abundance of bearish press comments and warnings of another financial crisis went unheeded by the market, coinciding with buy signals on the charts, supported by the Coppock Indicators. Investors have enjoyed the best quarter for some time. Some of the splendid Market Analyst weekly close charts are included in this issue as a progress report. It was a case of taking the message from the market. Investors are bombarded each day with many different views from different sources which, more recently, have been both conflicting and confusing for indicating true market direction. There are now so many ‘red hot' analysts on the Internet who promise some ‘holy grail’ that it is very important to know where you are in the big picture of the market cycle.

When preparing long-term analysis for this column I view the monthly, weekly and daily charts, together with my chosen indicators. Those indicators have performed well now for some decades. I suggest you do the same on your computer in order to understand the reasons for some of these comments. It is methodology designed to get you in and out of the profitable trends, both to preserve and to increase capital. Clusters of the harmonic 5, 15 and 30 period moving averages are brilliant; and when ‘even stacking’ signals occur, they are not to be ignored. They work both ways and are especially useful for waterfall declines. The Directional Movement System, I continue to believe, is the best back-up system. The ADX is a measure of the strength of the trend and not of its direction. It is wonderful for trending markets and helps you to identify the ranging, sideways markets where traders get chopped around. The Parabolic Stop with the ADX in strong trending markets gives you a stop loss for locking in profits. In the case of an uptrend, where the stock or commodity or currency continues to move higher after the initial activation of the Parabolic Stop, it provides a stop to protect you from a runaway movement, especially if you had initiated a short position. You do not want to be in a losing trade. I use the 11 period as opposed to the 14 period default provided in most software packages. My experience is that it is better to enter the market after a period of basing, when the ADX is around 16; although you get a much better trade if you wait around for the 25 level, which is considered a trending market. Using the ‘clustering’ of the harmonic averages and Directional Movement crossovers gets you in the trend early and hence produces better results...

Excerpted from an article originally published in the May/Jun 2012 issue of YourTradingEdge magazine. All rights reserved. © Copyright 2012, Your Media Edge Pty Ltd.
If you are a subscriber to YourTradingEdge magazine, you will receive this article in your May/Jun 2012 issue of YTE. If you are not a subscriber, click here to subscribe to our print edition, or to purchase a digital subscription, click here.

Room for improvement, says Dawn Bolton-Smith.

This year is guaranteed to bring in more surprises. There are many bears still around; but it might be that the bears are contrary indicators, calling for what they think the market action will be rather than using the charts. Currently, the charts give hope for a stock market recovery. After a hard week analysing data for this issue of YTE, and with many charts to support my view, I have one foot in the bull’s camp.

The stock market continues to be your leading indicator, so it is important to ‘go with the flow’. There was an interesting Weekend Financial Review article headed ‘Stockbroking Houses in Crisis’: my view is that over many years their advice has never been reliable as to when to sell. Stockbrokers rely heavily on the long term. Buyers at the 2007–2008 top have been wallowing in red ink, and it is doubtful whether some of the high flyers will ever get back to those levels. Buying must be for the right reason, i.e. for a rise in price. There is no other reason, although fat dividend yields can be tempting. Check the charts first. The best course of action for the new generation of stock investors is to become traders instead. One of David Fuller’s favorite quotes is Niels Bohr’s: “Prediction is very difficult, especially about the future.”

What other people are saying

David Fuller wrote in the Fullermoney free daily email, “In geopolitics as well as markets, it seldom pays to back extreme views, which are often trumpeted for reasons of sensationalism rather than objective analysis. Personally, I am less interested in writing about what has gone wrong with the monetary and political system during my lifetime. It is not good for my blood pressure: it bores the family and it would be delusional of me to think that I can influence, let alone change, these global markets. Instead, I am much more interested in finding a financial path through what can sometimes feel like a minefield. Usually, it is better than that, in which case the risk may be overconfidence rather than a paucity of opportunities.”

On 12 Jan 2012 David continued: “Returning to the theme of navigating markets, I unfurled my banner for Behavioural Technical Analysis in 1970, and Eoin now carries it very effectively in conducting the Chart Seminar around the world. Reaching my three score and ten next month, I am at the stage of life where I am no less interested in events, but recognise the finite nature of my energies. These have to be channeled to be effective, and for Fullermoney I would rather study the markets in the form of a naturalist, on behalf of subscribers and with their considerable contribution to the Collective, than campaign for reform of the monetary system...

Excerpted from an article originally published in the Mar/Apr 2012 issue of YourTradingEdge magazine. All rights reserved. © Copyright 2012, Your Media Edge Pty Ltd.
If you are a subscriber to YourTradingEdge magazine, you will receive this article in your Mar/Apr 2012 issue of YTE. If you are not a subscriber, click here to subscribe to our print edition, or to purchase a digital subscription, click here.