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Saturday, June 13, 2009

WHO cares and What else I look for...

- WHO announced that the H1N1 had reach Pandemic Proportions.
Actually they also previously said that the H1N1 was close
to Pandemic Proportions.

- Pharma companies such as SVA and Novartis announced that they were
producing vaccines.

- SVA is up 19.7% for the week.
- NVS is up 6% for the week.

OK, so now we know:
That WHO cares enough to announce a Pandemic.
The stock market loves hype.
I sometimes like to invest on hype. :-)

But most of you probably already knew that.

So, what else do I look for?

In addition to patterns, various companies (as a result of my multiple screens), I also look for particular stock indicators.

As with patterns, yes I do look at the particular "value" of these indicators but, I also look a trends.

Relative Strength (RSI): This, as the name implies, measures the strength of the stock at a particular point in time and is based on buying and selling activity.
RSI is plotted on a scale from 0 - 100. Normally anything above 70 is considered overbought and anything below 30 is considered oversold.

Moving Average Convergence Divergence (MACD): A trend momentum indicator that shows the relationship between two moving averages of prices. The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. A nine-day EMA of the MACD, called the "signal line", is then plotted on top of the MACD, functioning as a trigger for buy and sell signals.

These are perhaps the two that I look at most and no, I do not do any of these calculations manually. Yuk :-(
Most indicators can be plotted using any number of free charting tools such as those found on Yahoo and MSN. Yeah! :-)

Two other indicators I look at are: Volume and Money Flow.

Volume: Plots the number of shares or contracts being traded. This can also be compared to average daily volume and 'on balance volume' which attempt to spot trends of buy vs selling.

Money Flow: The MFI is used as a measure of the strength of money going in and out of a security and can be used to predict a trend reversal. The MFI is range-bound between 0 and 100 and is interpreted in a similar fashion as the RSI. The major difference between this and RSI is that MFI also accounts for volume, whereas RSI only incorporates price.

So, How does this work in practice?
Well, lets go to the video tape... or in this case our classic chart example from last week (MVL).

Below is the MVL chart starting at the end of the "W" reversal pattern. As I mentioned in my previous post, this is classic text book patterns and it is really nice when all the stars align and, of course hindsight is 20/20. ;-)

It gets more difficult to do this in real time and when not everything lines up so perfectly.

And, as always, nothing is ever guaranteed to work every time all the time. These patterns are based on law of averages and probability. But Hey, it does (trend) to work more often than not.

Until next week... Happy trading!


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