| Technical Analysis $XAU $TRAN $SPX $SILVER $SML |
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| Wednesday, April 18, 2007 |
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Nightly Update - SPX, TRAN, SML, SILVER, & XAU
Not too much to add regarding the portfolio and the market. We are still holding the same 15 positions. However, I did send out buy more alerts on some positions already.
The S&P 500 Large Cap Index (SPX) - Daily chart
As you can see from the daily chart, the SPX is in an ascending triangle pattern. The short term pattern is bullish and the trend is bullish. Price target remains 1304 at the low end, and as high as 1334 at the top end. Furthermore, you can see that the SPX is supported by strong volume on pullbacks and that volume is rising along with higher prices. Indicators and oscillators are bullish; the PPO is bottoming as are stochastics. I continue to stress that you stay on the long side and be sure that you are in the strongest sectors. Remember bears live below 1246 and Bulls live above that.
The Dow Jones Transportation Average (TRAN)- Daily Chart
We already know that the TRAN is in a large reverse symmetrical triangle (RST) pattern. Despite the larger pattern, the has TRAN rallied impressively for the last 7 days. Furthermore, the TRAN made new 52 week highs today. The rally in this index in the face of rising oil is impressive. Indicators and oscillators are working on a bullish trend reversal. Remember this: higher highs are bullish. Lots of stocks and mutual funds are making new 52 week highs along with the TRAN.
The S&P 600 Small Cap Index (SML)- Daily chart
The daily SML chart illustrates that it is in a reverse symmetrical triangle (RST). As always, the general rule of thumb is, that higher highs are bullish even though this pattern itself is treacherous. The Aroon is in a bullish trend. The RSI on the daily chart is heading higher and stochastics are bull flagging. The williams% indicator is trending. Also notice that the SML has been holding it's moving averages nicely. Furthermore, you can see that the SML is supported by strong volume on pullbacks and that volume is rising along with higher prices. Nevertheless, it remains to be seen if this pattern will over shoot the upper trend line and turn into a continuation RST after the double E is put in. Do not let this pattern scare you out of the market and prevent you from trading. I believe that the SML is headed higher to put in a double E around the 400 area. In fact, the SML may turn out to look like the DAX. It is important to keep an eye on the small caps because it is the one sector that continues to show leadership in the market and out perform it. The market rally continues to emphasize the small and mid caps, not the large caps.
Silver -Continuous Contract (SILVER)
The daily month chart of Silver looks very bullish. Silver just had a triple top breakout above $9.30. It is broke out of the ascending symmetrical triangle and made new 52 week highs today. All indicators are bullish. The PPO is starting to turn up nicely ad showing a positive divergence which is bullish. You may want to look at some silver stocks since the stocks will front run and outperform Silver itself. Almost every sector is participating in this rally now.
The Gold and Silver Index - Philadelphia (XAU) - Daily Chart
The daily chart of the XAU shows that it broke out of an ascending symmetrical triangle in mid November of 2005, and has rallied nicely ever since. Right now, the daily chart of the XAU illustrates that it has broken out of a bullish pennant. The XAU also made new 52 week highs today. Again, indicators and oscillators are bullish, and the PPO continues to make new highs along with price.
Megaphone Top Classic Pattern
Implication
A Megaphone Top also known as a Broadening Top is considered a bearish signal, indicating that the current uptrend may reverse to form a new downtrend.
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Description
A Megaphone Top is a relatively rare formation and is also known as a Broadening Top. Its shape is opposite to that of a Symmetrical Triangle. The pattern develops after a strong advance in a stock price and can last several weeks or even a few months.
A Megaphone Top is formed because the stock makes a series of higher highs and lower lows. The Megaphone Top usually consists of three ascending peaks and two descending troughs. The signal that the pattern is complete occurs when prices fall below the lower low.
Volume in the Megaphone Top usually peaks along with prices. It is usual to see trading volumes increase or remain high during the formation of this pattern. The eventual breakout and reversal can be difficult to identify at the time of its occurrence because volume does not appear unusual.
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Trading Considerations
Target Price
The target price provides an important indication about the potential price move that this pattern indicates. Consider whether the target price for this pattern is sufficient to provide adequate returns after your costs (such as commissions) have been taken into account. A good rule of thumb is that the target price must indicate a potential return of greater than 5% before a pattern should be considered useful, however you must consider the current price and the volume of shares you intend to trade.
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Criteria that Supports
Volume
Volume in the Megaphone Top usually peaks along with prices. A strong volume spike on the day of the pattern confirmation is a strong indicator in support of the potential for this pattern.
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Underlying Behavior
The creation of the pattern reflects a period of time when bulls and bears are battling to gain control of the stock. The pattern occurs after the bulls have been charging and driving the stock price appreciably higher. During the formation of the Megaphone Top, however, bears are exerting increasing influence on the stock and causing it to set a series of lower lows. The increasing volatility eventually creates a sense of uncertainty, leads to profit-taking, and deters some of the bulls from making any further commitments. The bears eventually triumph.
NO SELL OR PROFIT ALERTS ISSUED TODAY (BUY MORE ALERTS BUT NO SELLS YET)
$SPX
$TRAN
$SML
$SILVER
$XAU
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