All Ord Triple Top Confirmed, but Dow Jones Hold the Key

Source: http://ozstock.blogspot.com

At the end of this incredible week which saw both the Dow and the All Ords (as well as many others) plunged, the Triple Top of the All Ords has been confirmed. However, caution is in order as this is still a newly confirmed Triple Top and may turn around suddenly. Nevertheless, W.D. Gann and David Bowden recognised that Triple Top is one of the safest signals for beginners to trade, even more so than a Double Top, because when these signals are met, they are most likely to continue on as expected.

To avoid being caught out, decide on a suitable Stop Loss if your are going short. The level of stop loss depends on your own risk-reward apetite. Some people place stop loss at a certain percentage of their expected loss, for example you can put the stop loss at a price where you would lose 3%, 5%, 10%, etc. Others place their stop loss based on special points on the charts. For example with the Triple Top, we may choose the previous Low point as the stop loss which is in the week of 1st Feb 2010 at 4532 points.

In addition to the All Ords Triple Top, we also see the chart breaking the all important Gann 1:1 (brown line) or 45 degree angle. This is the angle of great strength where support or resistance will be tested. Again, it has only just broken this angle, so cautious trading with Stop Loss is prudent.

The Dow Jones on the other hand, does show a correction after coming down strongly from the yearly high. However, it has not formed any significant Double Top or broken any Gann angles. It is however approaching another the Gann +10 angle where it may find support or it can breakthrough.

The Dow tells a cautious story. As the All Ords seem to show signs of an emerging bear market, perhaps we have to look towards the Dow as a final confirmation as to whether both markets will go down or pull up from here on.

Technical Analysis - Summary of Trending Indicators

A. Directional Movement Index (DMI)

One of the easy way to trade for profit is to follow the trend. But with the market moving up and down on a daily basis, we need an indicator such as the DMI to confirm whether it is an actual trend or not.

The Directional Movement Index (DMI) is an indicator that measures the strength of a trend. It is used to answer question like, "Is this a strong uptrend?" or "Is this a strong downtrend?"
Developed by J. Welles Wilder, Jr., it is designed to determine whether a security is in a trending or non-trending market.

There DMI itself is a combination of 3 indicators

+DI: current positive directional index, the range of highs divided by the price range over the last day and previous close, smoothed over a given number of periods.

-DI: current negative directional index, the range of lows divided by the price range over the last day and previous close, smoothed over a given number of periods.

ADX: (Average Directional Index) modified moving average of the difference of +DI and -DI divided by the sum of +DI and -DI, multiplied by 100.

The most important of the 3 is the ADX which tells the strength of the trend, whether up or down, as long as its value is above 30 or 40.

To confirm an UpTrend:
  ADX > 30 the higher the better
  +DI > -DI

To confirm a DownTrend:
  ADX > 30 the higher the better
  -DI > +DI



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Summary of Oscillators

Technical Analysis - All Ords Triple Top and falling ABC Swing Signal

The chart of the Australian All Ordinaries show a few indicators together up until 19 May 2010.
This has been an incredibly volatile few weeks and some major signals are on the verge of being established, if they have not done so already.

1. The Triple Top - the most recent top seems like the biggest of them all. A double or triple top is one of the easiest way to profit according to David Bowden and WD Gann. But to be sure it is a triple top, its recent downward leg has to break the other two bottoms on Nov 09 and Feb 10. The recent lows has passed that slightly. This indicates a short signal - but remember the stop loss.

2. Swing Trading - ABC - This is another easy way to identify a trend. As indicated on the diagram, when the graph moves from C downwards and passes B, then it is time to sell. Notice the ABC is based on the swing chart of the daily graph.

3. Price Retracement - the scale on the right hand side indicates the current price has broke through the 50% retracement from the major high in 2007 to the major low in March 2009. The 50% is a strong resistance and support line and according to W.D. Gann, once it breaks through, it signals a strong trend.

4. Finally the graph below is the Average Directional Index - ADX - this indicator is not a commonly used one, but practitioners who use this indicator have done it quite successfully. Basically, for a downtrend to be established, the ADX (blue line) must be above 40, as it is now. This shows the bear trend is very strong. In addition, as the ADX is rising while -DI(green line) and ADX  are above the +DI (red line), it is a strong indication of sell.

There are many other indicators, but the four above combines the simple and proven ones as well as the more advanced ones, and they all point downwards.