Technical Analysis - Gann Angles on Australian All Ordinaries Index

Gann analysis using angles is performed here. One of the strongest signals according to Gann is the 45 degree Price vs Time angle. In other words, this main line has a gradient of 1:1. Then Gann suggest drawing secondary lines which is usually fractions of this main angle such as a gradient of 1:2 or 1:3 to get lower angles.

The two charts below are for the monthly and weekly Australian All Ordinaries Index. I found that the literature on Gann angles a little inadequate especially when they talk of 45 degree angles. This is because the points on each individual stock or index has such a different range that we cannot just speak of a gradient of 1:1 (45 degrees). In other words, one unit of price with one unit of time does not usually make 45degrees depending on what range of x, y values are displayed on the graph.

Instead, for the monthly chart, I have chose for the primary line, a gradient of 10:1 and half of that which is 5:1. For the weekly chart, I used the same ratio but rationalised to weekly -> 10 * 12mths / 52 weeks = gradient of 2.3. The secondary line is then half which is 1.15:1. To emphasize, the line on the graphs are NOT chosen by line of best fit by looking at the data. Instead they are chosen using specific gradients such as 10:1, which happen to fit remarkably with the trend.

As shown in the charts, the monthly is almost touch the primary line, while the weekly has just broken through. The charts is taken from the Low Point in December 1990 to present December 2008.




The question of where the share market goes from here is a question of whether the primary line acts as a strong support or it is headed down to the secondary line.

The call is yours to make .....

Technical Analysis - Summary of Oscillators: ROC, RSI, Stochastic, MACD

This is a brief summary of the main types of oscillators for technical analysis. They include Rate of Change, Relative Strength Index (RSI), Stochastic Oscillator, MACD. In general, the following points should be noted before use:
1. Oscillators are secondary indicators - Always consider the the Basic Trend first before using oscillator to look for change in trend.
2. Oscillators, by their nature, tend to be leading indicators.
3. Useful at extreme points, when market is overbought or oversold.
4. Divergence between price and oscillator is an important warning.

Note: This article does not aim to be comprehensive. It is hear to provide a quick summary and comparison. For details on technical indicators, one site is:
http://www.forexrealm.com/technical-analysis/technical-indicators.html


Rate of Change (ROC) = 100% * (Price(now) - Price(Ndays ago)) / Price(Ndays ago)
Typical Paramenters: N >= 10.
Sensitivity: small N is more sensitive.
Signals: ROC crossing zero upward and market trend is up => Buy and vice versa.
Can fit trend line to ROC.

Relative Strength Index (RSI)
Advantages: Smoother than ROC and provide a range from 0 to 100.
Typical Paramenters: N = 5 or 7 for short; 9 or 14 for medium; 21 or 28 for long term
Sensitivity: small N is more sensitive.
Signals: Overbought when above 70 (80 for Bull market), Oversold when below 30 (20 for Bear market)
Can fit trend line to RSI and compare to trend line of Price
Divergence: Important signal when RSI diverge with Price when above 70 or below 30.

Entry based on Divergence between Price charts and RSI chart.
- To target short entry, look at overbought peaks and draw trendline of peaks on Price chart and RSI charts. If the trend diverges, then signal to sell.
- To target long entry, do opposite to above.


Stochastic Oscillator: K, D
Signals: Sell when faster K line crosses the slower D line downwards from above 80, as well as the D line and price diverge with price still upwards. Vice versa for crossing above 20.

Moving Average Convergence / Divergence (MACD)
Typical Paramenters: 12, 26, 9
Signals: Faster MACD line cross above slower Signal line => buy. Vice versa for sell. Also Overbought when far above zero. Oversold when far below zero.
Divergence: When in Oversold region, MACD move up ahead of price line. Vice versa.

Sector - Agribusiness - List of Companies

As mentioned recently in this blog, apart from biotechs, this ozstock blog is now re-focussing on blue-chip companies. Unlike biotechs, ozstock will now start to use traditional fundamental analysis techniques to analyse these blue chips.

As a start, the previous blog has published some common financial ratios at:
http://ozstock.blogspot.com/2008/11/fundamental-analysis-ratios-formula.html
Note the above blog contains a live spreadsheet document (ie. updated from time to time).

In particular, ozstock has identified Agribusiness to be the next rising sector. As such ozstock has now identified potential Agri companies that we may analyse sooner or later. They are:

Australian Agricultural Company Limited (AAC),
ABB Grain Limited (ABB),
AWB Limited (AWB),
Futuris Corporation Limited (FCL),
Forest Enterprises Australia Limited (FEA),
GrainCorp Limited (GNC),
Gunns Limited (GNS),
Great Southern Limited (GTP),
Incitec Pivot Limited (IPL),
Nufarm Limited (NUF),
Primeag Australia Limited (PAG),
Ruralco Holdings Limited (RHL),
Ridley Corporation Limited (RIC),
Select Harvests Limited (SHV),
Tassal Group Limited (TGR),
Timbercorp Limited (TIM)

Tune in next week (or later) .....

Fundamental Analysis - Ratios Formula

This is a collection of commonly used financial ratios to assess the health of a company, as part of fundamental analysis. They include financial ratios from categories such as: Management Ratios, Profitability, Liquidity, Working Capital, Debt Structure, Debt Protection.

The definition are taken from a financial course in Valuation which I took a few years ago. The definitions may be more Australian focussed but it should be mostly applicable to international companies too.

Please feel free to comment.....

Note that these formula will be used in later articles when I start analysing blue-chips. For technical traders and Gann followers, notice that as of today, the ASX has plunged for the third time, meaning either this is the bottom or there is one more to go. Hence my move to analysing blue-chips since this is the period to buy. I would leave biotechs for a while at least until it is quite certain we have hit the bottom of this cycle.