The Essentials of Technical Analysis: Part III

When looking for patterns, it’s important to keep in mind that they’re more of an art than science. Pattern interpretations should be fairly specific, but not overly exacting as to obstruct the spirit of the pattern. A pattern may not fit the exact description, but that should not distract from its robustness. Below are patterns which I have found to be particularly useful and enriching in my personal experience as a professional trader.

A. Bump and Run Reversal: This pattern was developed by Thomas Bulkowski, and introduced in the June-97 issue of Technical Analysis of Stocks and Commodities. As the name implies, the Bump and Run Reversal (BARR) is a reversal pattern that forms after excessive speculation drives up too far, too fast. The pattern can be applied to daily, weekly, and monthly charts.

Bulkowski identified three phases to the pattern: lead-in, bump, and run. The lead-in phase can last 1 to 3 months and forms the basis from which to draw the trendline. During this phase, prices advance in an orderly manner and there is no excess speculation. The trendline should be moderately steep. If it is too steep, then the ensuing bump is unlikely to be significant enough. Bulkowski advises that an angle of 30 to 45 degrees is preferable. As the stock advances during the lead-in phase, volume is usually average and low. When the speculative advance begins to form the left side of the bump, volume expands as the advance accelerates. The bump phase forms with a sharp advance, and prices move further away from the lead-in trendline. Ideally, the angle of the trendline from the bump’s advance should be about 50% greater than the angle of the trendline extending up from the lead-in phase. Roughly speaking, this would call for an angle between 45 and 60 degrees. The distance from highest high of the bump to the lead-in trendline should be at least twice the distance from the highest high in the lead-in phase to the lead-in trendline. These distances can be measured by drawing a vertical line from the highest highs to the lead-in trendline. The run phase begins when the pattern breaks support from the lead-in trendline. Prices will sometimes hesitate or bounce off the trendline before breaking through. Once the break occurs, the run phase takes over and the declines continue.

B. Top Head and Shoulders Reversal: This pattern contains three successive peaks with the middle peak (head) being the highest and the two outside peaks (shoulders) being low and roughly equal. The neckline forms by connecting low points 1 and 2. Low point 1 marks the end of the left shoulder and the beginning of the head. Low point 2 marks the end of the head and the beginning of the right shoulder. The slope of the neckline will affect the pattern’s degree of bearishness. A downward slope is more bearish than an upward slope. Sometimes more than one low point can be used to form a neckline. It is important to establish the existence of a prior uptrend for this to be a reversal pattern. While in an uptrend, the left shoulder forms a peak that marks the high point of the current trend. After making this peak, a decline ensues to complete the formation of the shoulder. The low of the decline usually remains above the trendline, keeping the uptrend intact. From the low of the left shoulder, an advance begins that exceeds the previous high and marks the top of the head. After peaking, the low of the subsequent decline marks the second point of the neckline. The advance from the low of the head forms the right shoulder. This peak is lower than the head, and usually in line with the high of the left shoulder. The head and shoulder pattern is not complete and uptrend is not reversed until neckline support.

C. Bottom Head and Shoulder Reversal: The pattern contains three successive troughs with the middle trough (head) being the deepest and the two outside troughs (shoulders) being shallower. Ideally, the two shoulders would be equal in height and width. The reaction highs in the middle of the pattern can be connected to form a neckline. After breaking the neckline resistance, the projected advance is found by measuring the distance from the neckline to reach a price target.

D. Double Top Reversal: The pattern is made up to two consecutive peaks that are roughly equal, with a moderate trough in between. With any reversal pattern, there must be an existing trend to reverse.

In the case of the double top, a significant uptrend of several months should be established. The first peak should mark the highest point of the current trend. After the first peak, a decline takes place that typically ranges from 10% to 20%. Volume on the decline from the first peak is usually inconsequential. The advance off the lows usually occurs with low volume and meets resistance from the previous high. The pattern still needs to be confirmed. The time period between peaks can vary from a few weeks to many months, with the norm being 1-3 months. While exact peaks are preferable, there is some leeway. The subsequent decline from the second peak should witness an expansion in volume and/or an accelerated descent, perhaps marked with a gap or two. Such a decline show that the forces of demand are weaker than supply and that a support test is imminent. Breaking support from the lowest point between the peaks completes the double top.

E. Cup With Handle: The pattern was developed by William O’Neil and introduced in his 1988 book, “How to Make Money in Stocks”. There are two parts to the pattern: the cup and the handle. The cup forms after an advance and looks like a bowl or rounding bottom. As the cup is completed, a trading range develops on the right hand side, and the handle is formed. A prior trend should exist. Ideally, the trend should be a few months old and not too mature.

The more mature the trend, the less chance that the pattern marks a continuation or the less upside potential. The cup should be “U” shaped and resemble a bowl or rounding bottom. A “V” shaped bottom would be considered too sharp of a reversal to qualify. The softer “U” shape ensures that the cup is a consolidation pattern with valid support at the bottom of the “U”. Ideally, the depth of the cup should retrace 1/3 or less of the previous advance. However, with volatile markets and over-reactions, the maximum retracement could be 2/3. After the high forms on the right side of the cup, there is a pullback that forms the handle. Sometimes this handle resembles a flag or pennant that slopes downward, other times just a short pullback. The handle represents the final consolidation/pullback before the big breakout and can retrace up to 1/3 of the cup’s advance, but usually not more. The smaller the retracement is, the more bullish the formation and significant the breakout. Sometimes it is prudent to wait for a break above the resistance line established by the highs of the cup. The cup can extend 1 to 6 months, sometimes longer on weekly charts. The handle can be from 1 to many weeks, and ideally completes within 1 to 4 weeks.

F. Ascending Triangle: The ascending triangle is a bullish formation that usually forms during an up trend as a continuation pattern. Because of its shape, the pattern can also be referred to as a right-angle triangle. Two or more equal highs form a horizontal line at the top.

Two or more rising troughs form an ascending trendline that converges on the horizontal line as it rises. At least two reaction highs are required to form the top horizontal line. The highs do not have to be exact, but should be within reasonable proximity of each other. There should be some distance between the highs, and a reaction low between them. At least two reaction lows are required to form the lower ascending trendline. These reaction lows should be successfully higher and there should be some distance between the lows. If a more recent reaction low is equal to or less than the previous reaction low, then the ascending triangle is not valid.

Final thoughts:

While technical analysis can be a great help in trading the market, no technical indicator is infallible. Further, technical analysis is only as good as its interpreter. Finally, a significant of time must be spent in learning the principles of technical analysis, and in how to properly interpret the various charts and other technical indicators.In practice, many market players use technical analysis in conjunction with fundamental analysis to determine their strategy. One major advantage of technical analysis is that experienced analysts can follow many markets and market instruments, whereas the fundamental analyst needs to know a particular market intimately.

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Asset Management Uk Related Article

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Computer Asset Management Software Roadmap

Computer Asset Management Software Roadmap

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Computers Software Manufacturing Asset Management Interesting Info

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Despite Massive Layoffs Nationwide, These 28 Companies Are Hiring

According to a recent article by Fortune magazine, the following companies are on a hiring binge:

1. Wal-Mart (WMT). An estimated number of 960 new job openings to staff new locations. It’s hiring store managers, human resource managers, pharmacists, customer service associates and cashiers, among others.

2. Hewlett-Packard (HPQ). An estimated 150 new openings needed in several areas of its businesses, including information technology, human resources, research and development, marketing, finance and administrative.

3. Bank of America (BAC). 1,860 new positions needed in several areas including consumer banking, small business banking, credit cards, home loans, global banking, wealth management, technology, human resources, finance, communications, marketing and administration.

4. State Farm Insurance. An estimated 800+ new agents needed. There are positions in a variety of areas including claims and underwriting, finance, accounting and legal. The company aims to add 800 to 1000 new agent positions across the country, specifically in the Northeast, Texas and California.

5. WellPoint (WLP). 1,225 new positions needed. It’s hiring health outreach specialists, nurse case managers, accountants, actuaries, claims representatives, customer care representatives, enrollment and billing representatives, account managers, marketing managers, business analysts and sales assistants.

6. Boeing (BA). 2460 positions are available in various areas such as engineering, finance, communications, contracts, intellectual property, information systems, program and project management, operations, quality, marketing, supplier management and supplier quality, legal, business development and some administrative and support positions.

7. Microsoft (MSFT). 630 Positions are available in marketing, software development, customer service, information technology, operations, program management, small and medium business sales, software testing, administrative services, operations, user assistance and education, game design, content publishing, marketing communications, legal and finance.

8. MetLife (MET). 1000 new positions are needed in areas of information technology, human resources, finance, operations, call center, administration and sales (including individual policies, group, home loans – mortgage and reverse mortgages).

9. United Parcel Service (UPS). 3,070 positions are needed for part-time package handlers, mechanics, warehouse personnel, sales representatives and information technology professionals.

10. Medco Health Solutions (MHS). 300+ new positions for selective hiring companywide. One division in particular, Liberty Medical, which serves the needs of patients with diabetes, is hiring for a number of customer service positions.

11. Lowe’s (LOW). 7,900 jobs are available in corporate, stores and distribution centers. Positions range from seasonal employees in Lowe’s stores, to team members in regional distribution centers, to miscellaneous positions in the corporate office.

12. Time Warner (TWX). 480 openings posted online include positions in creative, editorial, marketing, media, finance, accounting, graphics design, animation, new media, ad sales, film/television production and programming, administrative, information technology services and online.

13. Sears (SHLD). 500+ new postions in information technology, eCommerce, finance, audit, marketing, brand management, merchandising and distribution. Positions are also available for associates, store managers and in-home technicians.

14. Supervalu (SVU). 180+ Corporate positions are available in various departments including advertising, marketing, retail operations, merchandising and finance. In addition, there are open positions in retail stores and supply chain services.

15. Johnson Controls (JCI). 750 positions related to energy efficiency.

16. GMAC. 750 positions include project managers, mortgage loan officers, underwriters, servicing call center representatives and loan loss mitigators. Additional openings are available in information technology, finance, compliance, risk and treasury.

17. Comcast (CMCSA). 1,000 openings primarily in call center operations, field operations, warehousing and sales.

18. Northrop Grumman (NOC). 3,700 openings include positions in information technology, engineering, production/manufacturing, supply chain management, program management, product development and administration (including human resources and finance).

19. Coca-Cola (KO). 160 jobs for a variety of different functions on many levels including finance, bottling, retail operations, production and customer service, delivery and food chemistry.

20. New York Life Insurance. 3,640 positions are available in accounting, actuarial, auditing, customer support, information technology, investment management, legal, life insurance and annuity products, product development and strategy, sales and underwriting.

21. Aetna (AET). 550 openings are in customer service, claims and health care, including nurses.

22. Motorola (MOT). 520 openings are in engineering, sales, finance, marketing and project management.

23. Abbott Laboratories (ABT). 260 jobs in sales, legal, information technology, administrative, engineering, clinical research, manufacturing, quality assurance and accounting.

24. General Dynamics (GD). 2,365 openings in many areas, but most job opportunities are in technology and manufacturing fields, and include administrative, engineering, design and development and production and installation positions.

25. Prudential Financial (PRU). 235 openings are in financial, actuarial, market research and analysis, operations and administrative.

26. Humana (HUM). 265 openings in sales, nursing, actuarial, finance, project management, information technology, pharmacy, medical, health, insurance, administrative, compliance, communications and legal.

27. Liberty Insurance Mutual Group. 500 positions are available in finance, nursing, legal, claims and sales.

28. HCA (HCA). 9,000 openings for registered nurses, licensed practical nurses, clinical technicians and patient care support workers.

Disclosure: The author owns none of the securities in his portfolio.

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