PPT Martin J Pring.pdf

Technical Analysis Explained Presented by

Martin J. Pring www.pring.com

Three Points to Take Home. 1. Prices are determined by psychology, people’s attitude to the emerging fundamentals not the fundamentals themselves. 2. Keep things simple and apply common sense at all times. 3. Only use approaches that make sense to you. www.pring.com

Real Earnings are not Correlated to Stock Prices (1870-2013) 4

Inflation Adjusted Equities 2 1

Shiller Real Earnings (10-year MA)

3

Deflated US Stock Prices versus Shiller P/E Ratio1900-2013 CPI Adjusted S&P Composite Deflated US Stock Prices

Shiller P/E

??

Definition of Technical Analysis: The art of identifying a price trend reversal at a relatively early stage and riding on that trend until….

….the weight of the evidence shows or proves that the trend has reversed. www.pring.com

In technical analysis we are dealing in probabilities, never certainties.

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The hopes and fears of all market participants are reflected in one thing ….the price !!

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Technical analysis assumes that prices move in trends.

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Trends have a tendency to perpetuate because...

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Prices in any freely traded market are determined by the attitude of all market participants to the underlying fundamentals.

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“A trend is a trend is a trend.” Always assume the prevailing trend is in existence.

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There is no known technique for determining the duration and exact magnitude of a price move. We can only recognize a change in direction.

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It doesn’t matter what time frame you are following...

…the principles of technical analysis remain constant.

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The only difference is… …the longer the time frame, the greater the significance of any given trend reversal.

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It doesn’t matter what security you are following... …the principles of technical analysis remain constant. If human nature ever changes technical analysis will die!!

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Trends

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What is a trend?

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Market Cycle Model

Short-term trend 2 to 6 weeks

Intermediate trend 6 weeks to 9 months

Primary trend 9 months to 2 years

3-4-years Source: Yelton Fiscal

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Market Cycle Model Short-term trend 2-6weeks

Now Becomes….

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Intraday Market Cycle Model Short-term trend 4-12 hours

Intermediate trend 4-12 days Primary trend 2-6 weeks

Psychology and Momentum

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Keycorp Keycorp

Earnings up Price down

Earnings

Earnings up

Keycorp Keycorp

Price down Earnings up

Earnings Earnings up

Ebay Price sideways to down Ebay

Earnings Up Ebay Earnings

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Calculating a Price Oscillator S&P Composite

13-week moving average.

S&P Composite (1/13 Price Oscillator)

Price oscillator appears on the next chart. www.pring.com

Stock Sentiment vs Stock Momentum S&P Composite (1/13 Price Oscillator)

Bullish Advisors 1/13 Price Oscillator*

www.pring.com * Source Investors Intelligence.com

Stock Sentiment vs Stock Momentum S&P momentum

Bullish advisors momentum www.pring.com

Bond Sentiment vs Bond Momentum Govt Bond Prices)

Bond Bulls (10-week MA)*

14-week RSI (10-week MA)

*Source Market Vane

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Primary bear

Primary bear market lasts 1 to 2 years

Primary bull market lasts 1 to 2 years

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. . . means that the price will very likely rally.

Oversold in a bull market . . .

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. . . probably means the top of the rally.

Overbought in a bear market . . .

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Followed by a trading range

Overbought in a bull market

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Followed by a trading range

Oversold in a bear market www.pring.com

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Doesn’t necessarily result in much of a rally

Oversold in a bear market www.pring.com

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GoldmanSachs SachsCommodity CommodityIndex Index Goldman Bull trend

Bear trend

Bear trend Extreme overbought is a bull market characteristic

30-day ROC

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GoldmanSachs SachsCommodity CommodityIndex Index Goldman

Extreme overbought is a bull market characteristic 30-day ROC

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Psychology and One and Two Bar Price Patterns

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Outside bars

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Outside bar Encompasses trading range of previous bar and then some!!

We want the close to be in the lower end of the trading range.

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Close should be in the upper part of the range.

Encompasses trading range of previous bar and then some!!

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Measuring the Significance of Outside Bars 1. The wider the bar and the wider the difference between the open and close the better.

2. The sharper the preceding rally (reaction for a down reversal) the better.

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Bank of India Daily Bank of India

Outside bar

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Two Bar Reversals

Sharp rally

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Closes near the high

First bar opens near the low.

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Second bar opens near the high

Closes near the low

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Resistance zone

The lower the resistance zone the better.

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CRB Composite

Two bar reversal

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Look at Different Time Frames

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December 2006 British Pound IMM 10-minute bar

False breakout

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December 2006 British Pound IMM Hourly bar

Two bar reversal signals false breakout

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December 2006 Dow 30-minute bar

Not much of a reversal signal.

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December 2006 Dow Hourly bar

Strong two bar reversal

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December Australian Dollar 2006 10-minute bar

No reversal signals here!!

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December Australian Dollar 2006 Hourly bar

Instant confirmation Two bar reversal

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December Australian Dollar 2006 Two bar reversal

S&P ETF (SPY)

Outside bar Outside bar

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Partial Checklist for Identifying a Stock Market Peak • Strong economy • Preceded by rising short-term interest rates. • Rotation already moved to earnings driven sectors. RS momentum of leaders rolling over. • Market breadth leads the way down. • Net new highs diverge negatively

Partial Checklist for Identifying a Stock Market Peak • Long-term momentum peaking. • Confirmed by trendline breaks and negative 12month MA crossovers. • Bullish sentiment. Question is no longer if, but when and by how much is the market going higher?

S&P versus the Economy

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S&P versus Bond Yield Momentum

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Sector Momentum Position August 31 2013 Inflation/Deflation Ratio)

Green highlights show when KST is rising. KST

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World Stocks versus Long-term Momentum

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S&P versus the Economy

15/16 and 6/6

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