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FEAR OF HEIGHTS

  • Daryl Guppy
  • 30 May 2017

Other than a fear of public speaking the next most common fear is fear of heights. This fear of heights is on full display when people think about the DOW, the S&P and the NASDAQ. In January commentators were already telling us the DOW rise was unsustainable and that a significant crash was inevitable. This mantra has continued for the past five months. In January, we set an upside target for the DOW at 21,000 using chart projection methods. The target was achieved in March and has been retested several times.

The 21,000 level is a significant resistance level, but its not the end of the DOW uptrend. In the short term the upside target is 21,600. In the longer term, the DOW has target near 23,700. These targets are calculated using chart pattern analysis.

The DOW and other major stock indexes like the S&P 500 have one feature that ensures that they will continually rise and break new records: They are built on survivor bias.

Survivor bias means the index is made up only of winners. Losers are dropped from the index. There have been 133 different companies in the list of 30 stocks in the DOW. Only GE has been a consistent member over the 120-year history of the index, and even it was dropped from the index between 1901 and 1907.

The resistance near 21,000 is psychologically important and its that behavior that we trade.  

 

The DOW chart now has three significant chart patterns and they combine to define the DOW rally in the short term and the strength of the longer term uptrend.

The first feature on the DOW chart is a long term uptrend line. This uptrend line starts in 2011, October.   Between 2011 October and 2015 August, the uptrend line acted as a support level.  

In 2015 August, the DOW moved below the uptrend line and then in 2017 February it again moved above the trend line.  The trend line is projected into the future and it will continue to act as a support level.

The second feature is the well-established trading band. The lower edge of the trading band is near 15,600. The upper edge is near 18,300. The width of the trading band is measured and then projected upwards.  This gives a target near 21,000 for the DOW.

Applying the same methods to the break above 21,000 gives a longer term target near 23,700.  In the shorter term the recent consolidation pattern between 20,400 and 21,000 gives an upside target near 21,600.

The third feature is the uptrend line starting from 2016 February. The slope of this new trend line is different from the slope of the long term uptrend line. The result is an ascending or rising wedge pattern. It’s not a perfect pattern because its interrupted by a dip below the lower trend line in 2016 November.

A rising wedge is a bearish pattern that signals a high probability that prices will collapse and head in a downward direction. As the price moves towards the apex of the pattern the momentum weakens. A move below the lower support is a reversal in the upward trend. These two lines intersect around July 2017 so there is plenty of time for continued bullish action.  However, traders will be alert for end of trend signals as the apex of this rising wedge is reached.

When these three features are combined, it provides information about the way the DOW breakout above 21,000 will develop. The long term trend line will act as a support level. We use the ANTSYSStrade method to extract good returns from these index movements.

 

             

 

SUBJECT SUMMARY

INDEX NOTES

Each week we carry index analysis notes for regional markets. These are the markets in Singapore, Malaysia, Hong Kong, Shanghai, Thailand, Taiwan and Korea. Each market is covered once every six weeks or more often if there are significant market developments. The objective of the notes is to provide an analytical, technical background to assist readers in making better trading and investment decisions.


About the Author
Daryl Guppy (Australia)
Known as the “CNBC Chartman”, Technical Analysis Expert, International Investment Master, Daryl is an active private position trader trading equities and associated derivatives markets.

Daryl Guppy is Founder and Director of Guppytraders.com Pty Ltd. He is an active private position trader trading equities and associated derivatives markets. His most recent book is ‘The 36 Strategies of the Chinese for Financial Traders’. He is the author of several books including ‘Share Trading’, ‘Trading Tactics’, ‘Bear Trading’, ‘Chart Trading’, ‘Trading Asian Shares’, ‘Market Trading Tactics’, ‘Better Trading’, ‘Better Stock Trading’, ‘Snapshot Trading’. Several of these books are also available in Chinese & Italian, in particular, ‘Trend Trading’ has become a best seller and is available in Chinese.

Daryl developed the Guppy Multiple Moving Average indicator which is included in DZHI Advisor, Metastock, OmniTrader and other charting programs. He delivers accredited courses for the Singapore Exchange and Society of Remisiers, Singapore. He is an appointed foundation member of the Australian Government Shareholders and Investors Advisory Council. He is a regular technical analyst commentator and guest host on CNBC Asia Squawk Box.

As a technical trader, he relies mainly on chart and live market information to make trading decisions. He is the publisher of a weekly Internet newsletter Tutorials in Applied Technical Analysis, which explains technical analysis techniques and shows how they are applied to current markets. There are Australian, Asia, China and India editions of the newsletter, with each concentrating on local market solutions and trading education.

He is a regular contributor to the Sydney Futures Exchange magazine - Your Trading Edge, the US trading magazines - Technical Analysis of Stocks and Commodities, Active Trader, Working Money, Bridge Trader, Australia's Shares and Personal Investment magazines, Singapore's Smart Investor magazine and The Edge business weekly and Personal Money in Malaysia. He has a regular column in China's Weekly on Stocks magazine and in Shanghai Securities News. He also contributes to Poland's Professional Investor and provided sector analysis on the Singapore, Hong Kong, Malaysia and Philippines markets for i-invest handbooks.

He edited and contributed new material to the Australian editions of the US classics in the International Investors Bookshelf series, The Basics of Speculating and Day Trader's Advantage and Options: Trading Strategies That Work and Trading Rules and Mastering Technical Analysis. He prepared the introduction to the Australian editions of Breaking the Black Box (M Pring), A Technician's Guide to Day Trading (M Pring) and New Thinking in Technical Analysis (R Bensignor).

He provides web content to Sanford online brokerage, Reuters, On Line Trading systems, the Society of Remisiers, Singapore, Asiastockwatch, Telstra Big Pond Money and Quicken, Singapore. He provides charting chat room support and is co-host for the stockmeetingplace traders forum.

He trades from Darwin in the Northern Territory, of Australia, some 3,000kms from the nearest Exchange. As a result he makes full use of electronic advantages to actively trade the market and to keep in contact with other Australian and overseas traders.

He gives conference briefings for brokerage private clients. He is a featured speaker at the Australian Traders Expo, for the Sydney Futures Exchange Conference days around Australia and New Zealand, and at the Australian Technical Analysts Association annual national conferences. He was one of the speakers in the first Australian Equis Metastock seminar series. He also spoke at the On Line Trading Summit in San Diego which was webcast to traders throughout the world, and at the Technical Analysis Trading Forum in Orlando. He has spoken at trading conferences in Italy and France. He has also spoken frequently at all the major Australian Stock Exchanges, and for brokerage firms.

He was one of two foreigners (Jim Rogers and Daryl Guppy) to participate in the 2005 Chinese market outlook conference in Beijing which was broadcast throughout China. He is a keynote speaker at the 2007 China Capital Markets Investment Forum. His analysis has been presented at the 2005 Palm Oil Outlook conference sponsored by Bursa Malaysia and the BYSD Annual conference in Turkey. He is a regular speaker at the annual ASEAN Rubber Conference and at financial trading seminars in Shanghai, Beijing and Shenzhen.

He presents Certified Professional Training modules for charting and advanced technical analysis for the Singapore Stock Exchange and the Society of Remisiers, Singapore and the Hong Kong Securities Institute. He has worked with the Singapore and Australian Stock Exchanges to promote their cross trading link. He worked with Reuters Hong Kong to deliver trading and training workshops. He was the lecturer for the Casuarina Senior College charting course.

He also runs public trading workshops, and equity and futures brokerage sponsored seminars for clients such as National On Line trading, CMC Markets, Beijing SEEC in Australia, Kuala Lumpur, Singapore, Shanghai, Dalian and Paris. He provides in-house training support for fund managers, brokerage dealers and remisiers.

He presented several on-line workshop conferences for Pristine.com and Compuserve Investors Forum. He has appears regularly on CNBC Asia, Squawk Box as guest host technical analyst, Asian Wall Street Journal, Trading Day, Channel News Asia and ABC radio and television.

He was retained as a consultant by several Australian and Singaporean brokerages and financial portals to advise on the development of Internet based brokerage, trading and information services. He is a member of the Australian Technical Analysts Association, the Technical Analysts Society of Singapore and the International Federation of Technical Analysts.


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