Archive for June 4th, 2012

The True Trendline

Conventional technical analysis is very powerful, because it simplifies market pattern analysis. Trendline construction and interpretation is one such simple approach. Most of the technical market patterns involve a trendline of some kind.

A trendline is drawn when prices test a line three times or more. A positive test (blue arrows) illustrates buyer support. While a negative test (red arrows) illustrate supply pressure (lot of sellers), which creates a strong resistance. When a trendline is retested it suggests that a previous buyer support has turned into a sellers resistance. In other words a positive trend has turned into a negative trend.

Trendlines come with different slants (inclinations). They can be inclining, declining or horizontal. After a trendline support breaks or is retested prices can be assumes to reach previous lows. This is why trendline supports on many occasions are considered the last supports standing. The trendlines which have not broken or retested are also called as true trendlines. Whenever such a trendline breaks, it’s a negative signal. We have illustrated some true trendline cases below.

This is the case with Dow Jones Industrial now. After two positive tests (blue arrows) price retested the trendline (at the red arrow) and the trend has reversed. A push below psychological 12,000 can take DOW 30 down till 10,500. S&P 500 has a true trendline support at 1,250. Sensex has a true trendline support at 16,000. This means a break at respective levels can push prices lower till 15,000.

Trendlines can also be drawn on momentum, which accompanies the price. We have illustrated the Indian Rupee INR, which has a breakout on the price trendline while the momentum trendline is still unbroken. This is a non confirmation between the trendlines drawn on price and momentum. Non confirmations are generally a sign of weakness in ongoing trend. We continue to look at the current fall on India, USA, China and MSCI Asia (ex Japan) to be of  multi week degree rather than multi month degree.

We have illustrated key trendlines on Silver, Gold, Brent Crude and various other markets.

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Our Jiseki Time cycles are seasonal patterns of strength or weakness in assets. They are derived from percentile rankings from 1 to 100. The higher the percentile more the chance for an asset to weaken and worst the ranking, better the chance for the respective asset to outperform. 100 is top relative performance and 1 is worst performance. The idea is that performance is cyclical. A top performer will underperform in future and vice versa. A top relative performer is also the worst value pick and the top relative underperformer is the best value pick. Jiseki is another name for Performance cycles, time triads and time fractals. The signals are illustrated as a running portfolio and as Jiseki Indices. These signals can be used by fund managers for relative allocations, traders for leverage bets and high net worth clients for selective trades.

Jiseki Interpretation. Signals are interpreted as crossovers between various Jiseki Cycles. All three Jiseki cycles (Jiseki 1,2 and 3) depict different time frames. Example: An asset is ranked above 80 percentile and all the three Jiseki cycles are pointing lower, this suggests a running SHORT SIGNAL. Our Jiseki Indices use different kind of exits based on price and Jiseki Cycles. We have color coded the (Jiseki 1>Jiseki 2) SHORT zones with brown sandy (burlywood) and grey (Jiseki 1>Jiseki2) for LONG SIGNALS.

Dr. Ionut Nistor is the co-author of Performance Cycles paper published in Kyoto Economics Journal in March 2009. Ionut is a professor of Corporate Finance at Babes -Bolyai University and a post doctorate fellow at the Kobe University in Japan. He is fluent in Japanese, Romanian and English.

The Bric Model from a Japanese Perspective
Ionut Nistor - Econohistory