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posted Sep 23 '10 by clete
ERY is ever so close to giving a buy signal on all three of the R#1 technical indicators, and more importantly $RIENG, the index that ERY follows the inverse of is right on the verge of giving 3 sell signals using the same three indicators after making a new lower high and bouncing off the resistence of the 200 day moving averages.
The fly in the oinment here is the 20 and 50 day moving averages which should act as support. So we have the 150 &200 acting as resistence and the 20 and 50 acting as support. That translates to sideways price action. A bounce off the 50 day moving average would likely send this back up to the 150 which would in turn draw the 20 and 50 day moving averages up closer to the 150 and 200. When all four of these averages get all bunched up together like that the result is often a big move. The price action is putting in a symetrical triangle (i.e. the price is making lower highs and higher lows). The direction of the big move will probably ( but not for certain) be triggered by whichever side of that triangle gets broken first.
The energy sector has been weak relative to the S&P 500 and so if the market breaks to the down side then shorting this sector (via buying ERY or other inverse ETF) would likely make you more money that shorting the whole market. And shorting a whole sector is less risky than picking out individual stocks to short.

could you explian,,,
posted Sep 23 '10 by uhbrent
how you set up your moving avg lines to show support and resistance? I just have the 10 day set accirding to Phils book. Thanks.

Moving Averages
posted Sep 24 '10 by clete
Moving averages work as technical indicators for one reason and one reason only - because lots and lots of people with lots and lots of money use them as technical indicators. Phil uses the 10 and 30 day moving averages, which there's nothing at all wrong with because there are butt loads of people who use them and so they do act as support and resistence. In fact the 30 day moving average is used a great deal because traders can use a 30 period moving average on both the daily charts and the weekly charts, which is convenient because you don't have to change study sets when you change time scales.
The thing with me though is that when I was reading Phil's book, I happen to also be reading another book by a guy named Stan Weinstein called "How to Profit in Bull or Bear Markets" (Do yourself a favor and read that book!) and as a result my meathod is sort of a hybrid between the two systems. When buying indivual stocks, I use Phil's method for the purpose of fundamental analysis but when it comes to the technical analysis stuff I use Stan's method more.
The averages I look at are the 20, 50, 150 & 200 period moving averages on a daily chart or when looking at a weekly chart I use a 4, 10, 30 & 40 period moving averages. Each set gives me basically the same line since there are usually 5 business days in one week. And as for setting them up to show the support and resistence, there's nothing to it. Just plot the averages and you can know that the price isn't generally going to just slice right through these averages without even slowing down. And again, this is true because practically every professional trader in the stock market universe has these lines plotted on their charts.
As for buy/sell signals, Phil like's both the 10 and the 30, I split the difference and use the 20. There's usually not all that much difference really. The key is to have a system that works and to use it. I do not use the 150 and 200 day moving averages as buy or sell signals, generally speaking. I use them for trand analysis. Basically, if the 150 is above the 200 then you're in a bull market, if its below the 200 then your in a bear market. Never ever trade in opposition to the trend. There are some tweaks to the general rule that become important when we are in transition periods like the one we're in right now but that's the basics of it. I really strongly recommend you get Stan's book and/or the book by Mike Swanson that I posted about the other day.

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