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Technical Analysis


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Table of Contents

Foreword.Acknowledgments.Introduction.The No-Frills Investment Strategy.Picking the Right Investment Vehicles. Risk: Reward Comparisons Between More Volatile and Less Volatile Equity Mutual Fund Portfolios Gain/Pain Ratios Drawdown: The Measure of Ultimate Risk The End Result: Less Is More Changing Your Bets While the Race Is Still Underway Relative Strength Investing Testing the Relative Strength Investment Strategy: A 14-Year Performance Record of Relative Strength Investing Results of Quarterly Reranking and Quarterly Rebalancing (1990-2003) Buy-and-Hold Results: The Standard & Poor's 500 Benchmark Increasing the Risk: Maintaining a Portfolio of Somewhat More Aggressive Mutual Funds Observations Upping the Ante: The Effects of Applying the Concepts of Relative Strength Selection to a Still More Volatile Portfolio of Mutual Funds General Observations A Quick Review of Relative Strength Investing Summing Up Two Quick-and-Dirty Stock Market Mood Indicators. Identifying High- and Low-Risk Investment Climates The Nasdaq/New York Stock Exchange Index Relative Strength Indicator The Maintenance and Interpretation of the Nasdaq/NYSE Index Relative Strength Indicator Observations Measuring the Market Mood with the Intermediate Monetary Filter The Monetary Model The Ingredients The Calculation and Rules of the Intermediate Monetary Filter Observations Combining the Two Indicators Point and Counterpoint Observations A Final Long-Term Statistic Summing Up Moving Averages and Rates of Change: Tracking Trend and Momentum. The Purpose of Moving Averages The Intermediate-Term Moving Average The Long-Term 200-Day Moving Average Using Weekly-Based Longer-Term Moving Averages Moving Averages and Very Long-Term Moving Averages Moving Averages: Myths and Misconceptions Using Moving Averages to Identify the Four Stages of the Market Cycle Stage 1 Patterns of Moving Averages During Stage 1 Stage 2 Patterns of Moving Averages During Stage 2 Advances Stage 3 Patterns of Moving Averages During Stage 3 Distribution Periods Stage 4 The Rate of Change Indicator: How to Measure and Analyze the Momentum of the Stock Market The Concept and Maintenance of the Rate of Change Indicator Constructing Rate of Change Measurements Bull Market and Bear Market Rate of Change Patterns Adjusting Overbought and Oversold Rate of Change Levels for Market Trend Looking Deeper into Levels of the Rate of Change Indicator The Triple Momentum Nasdaq Index Trading Model Maintenance Procedure Notes Regarding Research Structure Rate of Change Patterns and the Four Stages of the Stock Market Cycle More Than Just Pretty Pictures: Power Tool Chart Patterns. The Concept of Synergy Powerful Chart Formations Example 1 Example 2 Example 3 The Wedge Formation: Times to Accumulate and Times to Distribute Stocks The Wedge Formation Declining Wedge Formations Appropriate Strategies Synergy in Chart Patterns Head and Shoulder Formations Using the Head and Shoulder Formation to Establish Downside Price Objectives At Market Bottoms, the Inverse Head and Shoulder Formation Confirmation by Measures of Market Momentum Volume Spikes Are Very Bullish If the Stock Market Has Been in Decline The Selling Climax Support and Resistance Levels Support Zones Support Zones Resistance Zones Example: The 1999-2003 Stock Market Climate (Chart 4.4) Market Downtrends Major Trend Synergy in Action Tricks with Trendlines Inverse Trendline Support and Resistance Zones Channel Support and Resistance Early Warnings Provided by Channel Patterns Extended Channel Support Rising Resistance Zones False Breakouts and Breakdowns: Key Market Patterns A Significant Sell Signal A Significant Buy Signal The Key Political, Seasonal, and Time Cycles: Riding the Tides of Market Wave Movements. Calendar-Based Cycles in the Stock Market Days of the Month Pre-Holiday Pattern The Best and Worst Months of the Year The Best Six-Month Period, the Worst Six-Month Period Evaluating the Tabulations The Presidential Stock Market Cycle Comments Time Cycles: Four Days to Four Years Example of Market Cycles: The 53-Day Market Cycle Segments of Market Cycles The Significance of Segmentation Distinguishing Bullish Cyclical Patterns from Bearish Patterns Lest We Forget the Concept of Synergy... Lengths of Market Cycles The Very Significant and Regular Four-Year Market Cycle An Intermediate Market Cycle with a Confirming Indicator How the Confirming Indicator Helps the Cause The August-September Cycle The October-November Cycle The November to Early January Market Cycle The January-March Cycle The 18-Month Market Cycle with a Rate of Change Confirming Indicator Synergy Between Rates of Change and Cyclical Patterns Enter the Rate of Change Indicator For Future Readers of This Work Day Trading with Short-Term Cycles T-Formation: The Ultimate Cyclical Power Tool? The Construction of T-Formations Area 1 Area 2 Area 3 Area 4 Further Examples of T-Formations, Including the Application of Synergy T-Formations and Mirror Patterns of Stock Movement T-Formations and Longer-Term Time Periods Supplemental Indicators One Final Set of T-Formations In Summary Seasonal and Calendar Influences on the Stock Market Time Cycles T-Formations Bottom Fishing, Top Spotting, Staying the Course: Power Tools That Combine Momentum Oscillators with Market Breadth Measurements for Improved Market Timing. A Quick Review of Where We Have Been The "Internal" as Opposed to the "External" Stock Market Measures of Market Breadth New Highs and New Lows New High/New Low Confirmations of Price Trends in the Stock Market Positive and Negative Confirmations, 1995-2004 New Lows at a Developing Stock Market Bottom Creating a New High/New Low Indicator to Keep You in the Stock Market When the Odds Heavily Favor the Stock Market Investor Method of Interpretation The Application of the New High/(New Highs + New Lows) Indicator to the Nasdaq Composite Pre-Bear Market Comparisons The New York Stock Exchange Advance-Decline Line Relating to Advance-Decline Breadth Data General Observations Chart 6.4: The Advance-Decline Line Between 2002 and 2004 The 21-Day Rate of Change of the Advance-Decline Line Overbought Levels Oversold Levels Breadth Patterns at Bull Market Highs 1997-2000: A Period of Breadth Transition A Change in Tone A Major Negative Breadth Divergence Followed Using a Somewhat More Sensitive Rate of Change Measure of the Advance-Decline Line The Ten-Day Rate of Change Indicator The Weekly Impulse Continuation Signal But First, an Introduction to the Exponential Moving Average The Smoothing Constant of Exponential Averages Example 1 Example 2 Example 3 Stabilizing the Exponential Average Some Special Qualities of Exponential Moving Averages The Weekly Impulse Signal The Required Items of Data Each Week Buy and Sell Signals General Concept of the Weekly Breadth Impulse Signal Final Comments The Daily-Based Breadth Impulse Signal The Construction and Maintenance of the Daily-Based Breadth Impulse Signal The Performance Record of the Daily Breadth Impulse Signal The Application of the Daily-Based Breadth Impulse Signal to Trading the Nasdaq Composite Index Caveat Volume Extremes, Volatility, and VIX: Recognizing Climactic Levels and Buying Opportunities at Market Low Points. Market Tops: Calm Before the Storm; Market Bottoms: Storm Before the Calm TRIN: An All-Purpose Market Mood Indicator The Data Required to Compute TRIN Calculating TRIN Interpreting TRIN Levels TRIN as a Bottom Finding Tool The Volatility Index (VIX) and Significant Stock Market Buying Zones The Volatility Index Theoretical Pricing of Options Implied Volatility Ranges of VIX Bullish Vibes from VIX Summing Up The Major Reversal Volatility Model Calculating the Major Reversal Volatility Model Major Market-Reversal Buy Signals The 1970-1979 Decade The 1979-1989 Decade The 1989-1999 Decade Post-1999: Mixed Results The Ideal Scenario Advanced Moving Average Convergence-Divergence (MACD): The Ultimate Market Timing Indicator? Scope of Discussion The Basic Construction of the Moving Average Convergence-Divergence Indicator Basic Concepts Trend Confirmation The Signal Line Very Important Supplementary Buy and Sell Rules Rationale for Supplementary Rules Using Divergences to Recognize the Most Reliable Signals Additional Examples Improving MACD Signals by Using Different MACD Combinations for Buying and Selling Two MACD Combinations Are Often Better Than One MACD During Strong Market Uptrends MACD During Market Downtrends Modifying MACD Rules to Secure the Most from Strong Market Advances Reviewing Chart 8.9 Market Entry Supported by Positive Divergence Moving Averages, MACD Patterns Confirm Advance Initial Sell Signal Not Reinforced by Any Negative Divergence Secondary Sell Signal Confirmed by Negative Divergence Use Moving Average as Back-Up Stop Signal The Stop-Loss When Trades Prove Unsuccessful Synergy: MACD Confirmed by Other Technical Tools MACD Patterns Confirmed by Cyclical Studies When the MACD Does Not Provide the Most Timely Signals Money Management with the MACD (and Other Indicators) An MACD Configuration That Suggests More Active Selling MACD Through the Years: Long Term, Short Term, and Intraday The Start of a Bull Market An Example of the MACD Stop-Loss Signal in Action MACD Employed for Day-Trading Purposes MACD and Major Market Trends The Amazing Ability of the MACD to Identify Significant Market Low Points Following Severe Stock Market Declines MACD Patterns and Significant Market Bottoms Initial Rally at Start of Year Brief Decline and Well-Timed Market Re-Entry Rally and Topping Formation Waterfall Decline, and Then Bottoming Process Final Shakeout and Recovery MACD and the Four Stages of the Market Cycle Reviewing Rules and Procedures Associated with the MACD Indicator Creating and Maintaining Your MACD Indicator Buy Signals Prerequisite Sell Signals Converting the Daily Breadth Thrust Model into an Intermediate Entry Buy Signals Sell Signals Providing That... Summary of Results MACD Filtered Breadth Thrust Applied to the Nasdaq Composite Index Moving Average Trading Channels: Using Yesterday's Action to Call Tomorrow's Turns. The Basic Ingredients of the Moving Average Trading Channel Creating the Channel What Length of Offset Should Be Used? Moving Average Trading Channels in Operation Area A: The Chart Opens with a Market Downtrend Area B: The First Recovery Rally Area X: The Technical Picture Improves Area D: The Upper Trading Band Is Reached Area E: Prices Retrace to the Center Channel Area F: Improving Market Momentum Confirmed Bullish Indications Area G: The Center Line of the Moving Average Trading Channel Area H: Warning Signs Area I to J: One Final Attempt That Fails The Basic Concept The Evolution of Phases Within the Moving Average Trading Channel A Classic Topping Formation to End a Major Bull Market Chart 9.2: The Ingredients January 2000: The Bull Market in Nasdaq Moves Along Steadily Area E: The Fun and Games of the Bull Market Come to an End Area F: Trend Reversal Is Confirmed and Completed The Development of a Bottom Formation Moving Average Channels and the Major Trend 1996-1998: Strong Bullish Upthrust The First Correction Stops at the Center Channel Line Resurgence of Market Advance Technical Warnings Develop The Top Formation Moves Along Major Downtrend Gets Seriously Underway Patterns Suggest a Phasing-Out of Long Positions Significant Downturn Is Confirmed How to Construct a Price/Moving Average Differential Oscillator A Review of the Key Rules Associated with Moving Average Trading Band Trading Putting It All Together: Organizing Your Market Strategies. The First Step: Define the Major Trend and Major Term Cycles of the Stock Market The Second Step: Check Out Market Mood Indicators and Seasonal Cycles The Third Step: Establish the Direction and Strength of the Current Intermediate Trend and Try to Project the Time and Place of the Next Intermediate-Term Reversal Area The Fourth Step: Fine-Tune Your Intermediate-Term Studies with Studies Based on Shorter-Term Daily-or Even Hourly-Market Readings Remember Our Favorite Mutual Fund Selection Strategy! Lessons I Have Learned During 40 Years as a Trader Recommended Reading and Resources Charting Resources Sources for Research Books Relating to Technical Analysis Investment Newsletters Index.

Promotional Information

Unlike most technical analysis books, Gerald Appel's Practical Power Tools! offers step-by-step instructions virtually any investor can use to achieve breakthrough success in the market. Appel illuminates a wide range of strategies and timing models, demystifying even advanced technical analysis the first time. Among the models he covers: NASDAQ/NYSE Relative Strength, 3-5 Year Treasury Notes, Triple Momentum, Seasonality, Breadth-Thrust Impulse, and models based on the revolutionary MACD techniques he personally invented. Appel covers momentum and trend of price movement, time and calendar cycles, predictive chart patterns, relative strength, analysis of internal vs. external markets, market breadth, moving averages, trading channels, overbought/oversold indicators, Trin, VIX, major term buy signals, major term sell signals, moving average trading channels, stock market synergy, and much more. He presents techniques for short-, intermediate-, and long-term investors, and even for mutual fund investors.

About the Author

About the AuthorGerald Appel has, since 1973, published Systems and Forecasts, a leading technical analysis publication. Appel is legendary for his work in technical analysis and market timing, including the creation of Moving Average Convergence-Divergence (MACD), one of the field's most widely used tools. His numerous books include, among others, Winning Market Systems: 83 Ways to Beat the Market, Stock Market Trading Systems (with Fred Hitschler), New Directions in Technical Analysis (with Dr. Martin Zweig), The Big Move, and Time-Trend III. His company, Signalert Corporation, and affiliates, currently manages more than $550,000,000 in investor capital. Appel has trained thousands of traders through his world-renowned video and audio tapes, seminars, and workbooks. He recently taught a series of four-day international master classes on investing and trading strategies in partnership with Dr. Alex Elder. As Appel puts it, "I have never lost anything by giving ideas away. If people find it useful, it makes me feel good."

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FROM STOCK TRADER'S ALMANAC 2006: "The best investment book of the year" FROM SFO MAGAZINE, (www.sfomag.com) "Wisdom gained from three decades of studying stock markets and creating timing indicators is what you will find in Gerald Appel's latest book. ... This book is a master technician's superb source of well-crafted ideas for timing indicators." --George A. Schade, CMT

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