Alexander Elder: False Breakout

Dear Trader,

In recent newsletters we examined the charts of New High – New Low Index, which I consider the best leading indicator of the stock market. As its long-term message remains unchanged, let’s turn to the daily chart of the S&P and examine my favorite set of indicators. It includes a pair of exponential moving averages, an Autoenvelope, MACD Lines and a Histogram, and Force Index – all included on our elder-disks.



Experience has taught me that the strongest signal in technical analysis is a combination of a false breakout with a divergence. You can see how in June this combo launched the summer rally. Notice how MACD-H broke above its zero line between the two bottoms to set the stage for a divergence.

We’re now seeing a mirror image of that pattern developing in the stock market. MACD-H broke below zero last week, and it is now rising in a feeble manner, to a much lower top. At the same time the S&P broke out to a new high, above its early July top. This looks like a false breakout, a part of the combo. As soon as the daily MACD-H ticks lower (below its previous bar), it’ll complete a bearish divergence and give a sell signal.

Forewarned is forearmed. Historical studies show that the years in which a sitting president runs a re-election campaign tend to have a major low in August, followed by a strong rally, regardless of the election outcome. This is in gear with the patterns emerging on our chart.

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Historical studies show that the years in which a sitting president runs a re-election campaign tend to have a major low in August, followed by a strong rally, regardless of the election outcome. This is in gear with the patterns emerging on our chart.

I couldn' t agree more, I' m expecting an IT-LT low in mid august and then the mother and father of all the fake rallies (fed manipulation) to 1500 sp

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As its long-term message remains unchanged, let’s turn to the daily chart of the S&P and examine my favorite set of indicators.

Do you remember what he said about the long term? I get the email from him but don't remember what he said abou it.

Do you remember what he said about the long term?

Hi Dex.
Here are a few outtakes from his letters over the past year as he has gone from bear in May 2011 to bull and now back to bear.

August 10, 2011:
Many thanks to readers for sending compliments on our recent market calls. On May 11 we sent out Books & Trades headlined “Approaching a big turn?” That letter showed several charts which identified the top and called for a serious downside reversal. On June 10, Books & Trades updated those charts and showed how they set a downside target below 11,300 for the Dow. It concluded: “I would use rallies to get of stocks which you should have sold in May. For the more adventurous – such rallies will present additional shorting opportunities. If you have spare cash in your account, now is the time to conserve it and begin preparing your shopping list for the eventual bottom.”

Jan 26, 2012:
Our November newsletter was titled “The Media Cries Crisis; the Charts Say Cheers,” while the December newsletter showed why we were in a bull market and approaching the end of a correction.

April11, 2012
A Bull Morphing into a Bear

Dear Trader,
During last night’s webinar Dr Elder has laid out the evidence why the current bull market is at an end and the bear market is likely to begin.
Of course, no one has a magic crystal ball to forecast the future – but one can lay out the facts and observations to arrive a conclusion. Needless to say, all market decisions must be backed by solid risk management (see CIMTR), including protective stops and sensible capital allocation. Last night’s webinar focused on technical signals.

Edited by Rogerdodger, 21 July 2012 - 10:37 AM.

April11, 2012
A Bull Morphing into a Bear

Dear Trader,
During last night’s webinar Dr Elder has laid out the evidence why the current bull market is at an end and the bear market is likely to begin.
Of course, no one has a magic crystal ball to forecast the future – but one can lay out the facts and observations to arrive a conclusion. Needless to say, all market decisions must be backed by solid risk management (see CIMTR), including protective stops and sensible capital allocation. Last night’s webinar focused on technical signals.

Thanks,
I read his book Trading for a Living (I think that's the name). I'm past that period in my life and more like Gary Smith - US Treasuries and high yield bonds.