A series of video tutorials to help you get started! (In collaboration with TradeHero & SGX)

Major Commodity Indices reaching a roadblock – how will these affect the commodity stocks? | Technical Analysis | Commodity Indices


Both the CRB and the DJC commodity indices are near the crucial 50% retracement level, which will act as strong resistance. Prices will definitely not sail right past this level, hence there will have to be some sort of reaction, for example like a pullback or consolidation, or even a correction. This could act as a drag on commodity stocks in the coming weeks. This once again highlights the importance of tracking the various global markets, even when your main market is the Singapore market. Stay tuned!

S&P 500 – new highs after breaking out of inverted H&S | Technical Analysis | Stock Indices

After completing an inverted H&S, the S&P 500 has proceeded to make new highs. Judging by the numerous strong white bars, the upward pressure is quite strong. It might be a good idea to go long on a pullback, perhaps on a test of the breakout to new highs. On a side note, I will be heading to Budapest this weekend. 

Dow Jones – familiar pattern could propel Dow to over 12,000 | Technical Analysis | Stock Indices


A similar-looking pattern suggests a lot of upside, especially if it finds support at the W-pivot and both EMAs. Please ignore the volume, it’s not working right for this index. Based on the length of this pattern, we could be seeing upside moves of beyond 12,000. Be ready to start buying!

The Random Walk Myth: Theory vs. Practice

The random walk theory, which started off from academic offshoots, put forth the idea that one should give up trying to predict or beat the markets because it was impossible to do so. In theory, this theory sounds plausible, but in practice, financial history has proven otherwise, with both investors and traders consistently beating the markets.

 

The Random Walk Myth: Theory vs. Practice

The Random Walk Myth: Theory vs. Practice

 

The random walk  theory states that price history is not a reliable indicator of future price direction because price changes are “serially independent”. In other words, there is no definable relationship between the direction of price movement from one day to the next. This does not mean that prices meander aimlessly or irrationally, but it means that prices have no patterns of order within the chaos.

We know that prices are determined by a balance between supply and demand. Random walk theory asserts that prices reach that equilibrium level in an unpredictable manner, moving in an irregular response to the latest information or news release. New information, being unpredictable in content, timing and importance, is therefore random in nature. Consequently, the theory puts forth that price changes themselves are random.

Try this interesting optical illusion:

The Random Walk Myth - Can you see the pattern here amid the "randomness"?

The Random Walk Myth – Can you see the pattern here amid the “randomness”?

While price changes might seem random in nature, the trend of prices themselves are not. In reality, price movements contain well-known components of trend, seasonality and cycles which are not random in nature. Although these are mostly clear when prices are considered over the long-term, if one observes prices very closely in the short-run, price trends or patterns are also readily recognisable.

Technical analysis and chart-reading analyses the impact and action of market participants in response to the latest news or information. As a result, it is possible to understand what the different market participants are doing, and which way the market is likely to trend next. Besides, the market is not perfectly efficient, and reading the actions of the smart money will often alert traders to what is happening in the markets.

 

“The illusion of randomness gradually disappears as the skill in chart reading improves.” – John Murphy

Dow Jones Industrial Average – watch for demand coming in at support zone


Currently, a markdown phase is heading right into a channel bottom area, where potential demand could come in. We should be looking out for signs of accumulation and bullish reversal bars or small pause bars which could turn the tides.