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  • mikebert mikebert May 25, 1998 8:58 AM Flag

    Picking a bottom

    Coffeepot suggests the use of TA to evaluate
    potential stopping points. One such method is the Japanese
    candlestick. When ANLT fell briefly to 32 intraday and then
    roared back to 40 it entered a period during which it
    showed the dark cloud cover pattern followed by a
    bullish engulfing pattern. These formations suggested
    that the stock would hold in the high 30's. Not only
    that, but the stocastics moved above 25 during this
    period. This was good, I thought, as I had bought ANLT at
    an average cost of 40.

    Nope. It fell abruptly
    to the low 30's, at which point it displayed the
    piercing pattern indicating a bottom reversal. Not only
    that, there was support at 30. It did hold for several
    days in this region and a number of posters bought
    thinking we were at a bottom. I agreed, I bought more at
    an average price of 30.

    Nope, down it went.
    It was at this point that I thought of another way
    to look at the stock to see just how far it might
    fall (and how much pain I was going to have to
    endure). The answer was around 24 (see #475), which was
    pretty depressing, so I put in limit orders at 22 and 23
    (I figured it might "spike" down from 24 briefly and
    I could get them at a slightly lower price). These
    orders were filled last week.

    Now, some would
    say, you should wait until it is done falling and has
    based before you buy. This sounds good, but how do I
    know it has based? Has it based now? Are people buying
    now at 26 1/2? Or will you wait for it to develop a
    clear uptrend before buying in?

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    • Mike...

      In your post, you have mentioned
      just "two" TA indicators, namely Japanese Candlesticks
      and Stockchastics.

      I am somewhat surprised at
      this, due to all the posting advise from the CHSE board
      from myself and all the other TA's advising to use
      many indicators in combination for any read!

      believe I also posted this same advice on this board. One
      has to look at "many" indicators at any one point to
      get the best possible read of the situation. You
      can't rely on just using one or two indicators to make
      a TA decision with. You will most likely get burned
      doing this! I use Stockchastics,MACD, Williams%R,
      Candlesticks, Volume, Momentum, Bollinger bands, RSI, OBV, EMA
      2 and 3 line, patterns and linear trend analysis
      the most.

      It is also very important to chart
      different frequencies(DAILY, WEEKLY, etc.)

      ANLT at
      this point:

      Daily chart:
      Candle formations
      are overall bullish, Bollingers are"starting"to
      close, RSI and OBV have reversed direction and are
      heading up, EMA(9) has turned up and MACD has crossed
      with Divergence low at the signal line. These are
      bullish indications on the daily chart, not to mention
      the abrupt halt to the decline shown by linear
      analysis. ...Stockchastics are headed up but are nearing
      80.Williams %R is rising but nearing -20. These can suggest a
      top to the first "bounce" off of the major decline is
      at hand or is nearing.

      Candlesticks have just turned bullish, Stockchastics are below
      20 and have crossed, heading up!, Williams %R has
      bounced off of -100 and is heading up!, RSI and OBV have
      turned and are heading up. Very good
      indications!!....The Bollinger bands are still wide however and
      negative divergence is high and EMA(9) is still showing
      down. These can turn and improve very fast and would in
      any base or flattening at the

      So...taking all these indicators into cosideration....ANLT
      has most definitely made a definitive halt to the
      recent decline. The recent bounce from the decline low
      does have downward short term pressure for a rest. A
      decline may happen very soon, but would be a bullish
      decline on "overall" low volume. Given the strength I saw
      on Friday, and the strength of the other bullish
      indicators, I would be inclined to bet against a retest of
      the absolute low already established on the major
      decline. I would wait for this spurt to top out and
      decline to evaluate an entry point at this time or for
      more accumulation.

      Hope this helps!....This of
      course is only my opinion and does not involve any news
      nor major market influences.

      TechnicalTom may
      want to jump in here and help out with his perspective
      too....he has much more history with ANLT than I


      Coffeepot2000 :)

      • 1 Reply to coffeepot2000
      • Many technical indicators are transformations of
        the data shown in a typical stock plot. The
        information contained by these indicators is present in the
        stock chart itself.

        At all of the past points
        where people (including me) bought on the way down, the
        stock had not established an uptrend. Just by glancing
        at the chart, it looked a lot like the trend might
        continue going down. So naturally, many of the TA
        indicators were negative. After all, momentum has to be
        negative in a downtrend. And in any large correction MACD
        and moving averages have to be bearish as well.

        At some point it was going to stop falling. And when
        it does, the momentum-type indicators will have be
        bearish. I employed candlesticks for my TA example because
        they are not based on historical price movements and
        so can show either bearish or bullish signals in a
        downtrend. Indeed the candlesticks did show bullish signals
        on the way down that were all wrong, and when we
        actually hit bottom at 22 there were no positive signals
        at all.

        There are some TA tools that
        incorporate volume with price movement and can show
        information not present on the stock chart. These tools
        presumably could show bullish signals in a downtrend and so
        could have value as bottom detectors. Chart patterns
        can also give information independent of the trend. I
        am not a competent chartist, and I don't have most
        of the volume-based tools readily available to me.
        So I asked for help from some TA experts.

        The reads that you and others gave, did not encourage
        a bullish stance when we reached the 22-24 region,
        which it now appears may have been the time to buy (I
        did). This suggests that the entire range of TA tools
        available in concert were not sufficient to identify which
        of the potential entry points (e.g. 43, 37, 31, 26,
        23) on the way down was the right one.

        it still seems to me that TA cannot reliably tell
        you where to buy on a pullback. This shouldn't be a
        problem for me. After all, this drop is simply a pullback
        when viewed from long te

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