SLW: Patterns

(I have noticed that your targets overlap sometimes with the ma's I use or the bb . .but when they don't, your "patterns" seem to be the stronger indicators. This inspires me :-).

Mary,

The Yahoo FCX Message Board wouldn't allow me post this, so I've posted it here. I think the problem was that my message contained too many "characters." Sorry about that.

After years of studying just about every technical indicator imaginable, hands down, what has helped me the most in my trading has been the patterns.

They not only are helpful when they break out or break down, they're also VERY helpful when they fail, like the four examples in FCX that I mentioned to Davenport this morning.



This Double Breakout to the upside in SLW that quickly morphed into a Bearish Rising Wedge and just as quickly broke down on April 11 at 44.44 was the single most compelling factor in helping me to understand what was going on in that stock. As I mentioned in my SLW post on Friday, it's had a total of four distinct breakdowns since the April top, seen in the next chart (red arrows).



This chart is a "redraw" of the April top pattern "morph," from the Double Breakout, into the Bearish Rising Wedge (pattern in blue). Charts continually evolve with each new candle, and we have to try to evolve with it. The fact that nothing materialized on the upside after the Double Breakout in the first chart isn't any "fault" with technical analysis. Part of technical analysis is that there are Fakeout Breakouts and Fakeout Breakdowns, or Bull Traps and Bear Traps, and we have to deal with that. This one in SLW was a Bull Trap "Double Breakout Fakeout."

As I noted on this second chart, the current Rising Channel is looking questionable. SLW hasn't been respecting the lower trendline, trading a good bit below it in the last two sessions, but I'll leave it in and see what develops. Friday's 34.43 low, by the way, was a complete gap fill of the May 23 close of 34.42, so that's done.

The Bullish Inverse H&S pattern in the first chart also is a possibility in the current time-frame. The facts that (1) the trend is bearish, and (2) we still have two downside targets IN PLAY in this chart (32.01 and 29.28) have me a bit cautious about any bullish expections, but we always want to be as objective as possible and try to look in both directions.



My favorite technical indicator is the Fibonacci sequential measures of Relative Strength: 8, 13, 21, 34, 55, 144, 233. I usually "triple thread" them so that Watson & Crick don't have anything on me with their Double Helix discovery. LOL.

The 8RSI, obviously, is the fastest RSI and will turn up (or down) first. The usefulness of this indicator in my work is when one of the RSIs in the sequence thrusts higher then pulls back to what I call "synchronicity," i.e, readings that are very close, or nearly identical. The "trigger" for the signal is if the stock can print a "higher high" than the prior session, and close positive. The opposite of all of that, for a bearish signal.

The faster signals (8/13...13/21) are less reliable than the longer-term signals (21/34...34/55...55/89...89/144...144/233). Signals seem to work better if there are repeat signals, like we'll have here with the 8/13 if SLW prints 35.59 on Monday, a penny above Friday's high, and closes higher. The 8/13 gave a buy signal on May 23, so this would be a repeat signal, if it triggers. Signals also seem to work better if a discernible pattern is involved, like a Data Point #4 of a pattern getting put in, while there's a repeat buy signal out of one of the RSI pairings.

I hope that this explanation isn't too complicated or confusing. This is a "homemade" indicator that I've played with. Just as with pattern failures, RSI signal failures can be useful, too. If the lows of repeat buy signals get taken out, it often is a good signal to sell short. The reverse, if the highs of repeat sell signals get taken out.

(I have adopted you as my mentor . .and there is nothing you can do about it :-) Teehee!)

I'm very flattered, Mary, but I still make my share of mistakes, believe me, and probably always will. I doubt that anyone really masters this game, but if our winners exceed our losers, we'll do fine ;)

Have a great weekend, Mary!