Spot-on market analysis and insights from the trading desk

Parkway – failed H&S signals renewed strength – time to buy! | Technical Analysis | Singapore Stocks

I just returned from my weekend trip to Vienna, and I missed 2 trading days. This was one of the longs I was holding, and I think that it has more upside potential, and at least a test of the previous high.


With the failed H&S pattern, I am expecting a minimum target of 3.14, which is the old high. If it clears this, it might then move to near the channel top. A very strong stock indeed.

Capitamall – another swing short setup | Technical Analysis | Singapore Stocks

A potential short setup, with a 2nd entry opportunity on a larger triple top formation. Also, another interesting thing to note is the triple fanlines, which according to TA folklore, will signal a reversal when the 3rd fanline is broken. Till date, the 3rd line is still intact, but a test of the 2nd line still provides a potential short, or at least a scalp.

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:


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

Genting – box trading tactics for trending ranges | Technical Analysis | Singapore Stocks


Genting has been trading very nicely within these boxes, and now there is a morning star reversal pattern near the bottom of a box. This is also near the bottom of the downtrend channel. In addition, it could be a false breakout below the 200-EMA which could have trapped some shorts. If you observe carefully, you will notice that a breakout to a new box is accompanied by a test of the opposite side of the box before another breakout. This makes the top of this box an excellent target.