Market Wizards

Many people have abused the use of terminology such as double top, double bottom, head & shoulder & triangle...etc. These terms are part of a technical toolkit called Chart Patterns. For example, when Olam failed to rally beyond June 2's high ( $2.38 ) on June 15 ( $2.38 too ). Some people have immediately labeled Olam as having double top. This is not correct !
Chart patterns are pictures of trader's psychology reflected in the price charts that have predictive value. There are two major categories of chart patterns namely "Reversal Patterns" and "Continuation Patterns".

Reversal Patterns are considered "major" patterns because they usually required a longer time to form ( minimum 1~ 3 months, often longer ) and are rare ( at major market top or bottom ). Head & Shoulder, Double Top / Bottom, Triple Top / Bottom, Saurcer & V Spike fall under this category. Any "pattern" that has two "tops" which are only 5 ~ 10 days apart will not be a legitimate double top let alone the importance of volume as a confirmation is normally omitted ( by these people who have labeled it as double top ).

Continuation Patterns can be sub-divided into two categories based on time frame - Intermediate ( typically 1 month, may stretch to 2 ~ 3 months ) & minor ( no more than 3 weeks, typically 1 ~ 2 weeks ). All Triangles ( Symmetrical, Ascending, Descending, Wedges, Broadening ) come under Intermediate whereas Flags & Pennant come under minor. By the way, Flags & Pennant are the MOST reliable patterns of all patterns.

Volume is usually very important as a confirmation to the valid formation. In most cases ( except broadening triangle ), volume diminishes as the pattern takes shape ( For broadening triangle, volume expand as the pattern takes it shape ). Time frame is another vital consideration when validating the pattern. Take triangle as an example, breakout should take place between 2/3 to 3/4 from the 'base' to the 'apex'. Many people try to draw two converging lines on the prices and label them as a triangle even if the prices have reached the apex. This is again not correct ! If there is ever a 'breakout' from such a 'pattern', it is just coincident due to market sentiment. Trust me, you are just lucky, it has nothing to do with the mainstream chart pattern study ! It is more likely to be the breaking of a support / resistance or trendline instead.

Chart pattern is a big topic in technical analysis that is not possible to cover with one post. Some trainers charge a hefty sum for a 3 ~ 6 hours session workshop on this. The above is as much I can cover with one post ....

The Market:
No change in my view on STI. It will either trigger Parabolic SAR buy phrase to turn bullish ( another 10 points up will do so ) or edge down to touch 2100 ( over time ). A word of caution, even if Parabolic SAR buy phrase is triggered, the index may still come down to touch 2100 after a brief spike. Parabolic SAR can have whipsaw too. Two additional points to note: CCI is in over-bought. Trendline violation has always been unforgiven historically. So overall, it is a very tricky moment ought to be cautious.... When would I consider safe if STI does turn bullish by Parabolic SAR, if it closes above 2,400.

I have recently come across a wise quote from a book "Mental Fitness For Trading" by Norman Hallett : “I’d rather be out of a market (or stock) wishing I was in, than in a market wishing I was out.”. Think about it... make sense?

The wave 4 label has just shown up yesterday ( finally ! ). However, this does not mean wave 4 target is met as there can be recount as we continue to edge down. PTI is still pretty high ( at 78 ). Normally, PTI should be < 35 in order that the correction is considered done. The odds : If STI hits around 2,340, it will turn bullish ( Parabolic SAR ).

Welles' RSI stood the test time and again ! The bearish divergence spotted on June 2 has finally kicked into action. Admittedly, my confident level was shaken along the way and thought that I have read the market wrongly ( this is apparently one of my many weaknesses in trading ! ).
The next characteristic of RSI is that the mid-point ( 50 level ) will often act as support during pullbacks & resistance during bounces. We are closed enough to 50 right now ( 52.64 ). Let's see if this works ! I think the chances is high from the perspective of candlestick too. Today's closing look like a possible reversal day !

I guess I have read the market wrongly !? But the good news is I did not miss the move this time. Although I have been pessimistic, I was not stubborn about my view and have made provision for mistake. I have accumulated some the past few days and added more today as the market move. It seems like the index is going to make yet another attempt to clear 2,400. If it is successful, we can look forward to 2,600 and most of the stocks should hit new high! Once 2,400 is attained, Parabolic buy phrase will be triggered.
Now that I have turned bullish as the market unfold, I have not totally dropped my cautious view yet unless STI is able to break 2,400 decisively. Failing which, we may still be looking at 2,280 ~ 2,180.

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