1. Reading Stock Market Charts
Investors want to see into the future.
Technical analysis employs past patterns in stock prices to forecast the future.
The chart shows what is happening without being an expert in the industry.
Liberation by M.C. Escher

2. Beliefs About the Future
Forecasting rests on an implicit belief that past relationships will continue into the future.
Natura non facit saltum – Nature never moves in leaps by Alfred Marshall, 1890, Principles of Economics, front piece motto.
If the world changes too quickly, no model will be useful.
The Present

3. Reading Daily Stock Charts
Open-High-Low-Close appear in bar charts.
Charts show volatility and how the stock performed over the day in summary fashion.
Volume also shows activity on the bottom.
Plain Vanilla Charts

4. Candlestick Charts The wick represents the high and the low
The bar (candle) shows the open and close
An empty bar shows a rising price from open to close
The filled bar shows a declining price
Candles call attention to up and down moves
Closed and Open Candlesticks

5. Trendlines and Channels
Market Wisdom revealed
in pithy sayings:
The trend is your friend
Don’t fight the ticker
Don’t stand in front of a runaway train
Go with the flow
Don’t swim upstream
They demonstrate wisdom that the market sometimes has updrafts and downdrafts
The trend is definitely upward

6. Downtrends Occur
The trick is to know when the trend is down and when it is up.
Selling at the top is hard to do.
But hanging on to a loser is unprofitable.
Downward Channel Lines

7. Ten Common Technical Tools
Dow Theory, Head & Shoulders & Confirmation
Cumulative Volume Indices
Short Ratio
Number of New Highs or New Lows
Moving Average Convergence-Divergence Analysis (MACD)
Trends, Channels, Bollinger Bands
Moving Averages
Relative Strength Indicators
Advance/Decline Ratio
Elliott Waves
Dick’s Favorite

8. 1. Bollinger Bands & 2. Simple Moving Averages
In the 1980s, John Bollinger, developed the technique of using a moving average with two trading bands using standard deviations.

9. 2. How to do Moving Averages (MA) and Exponential Moving Averages (EMA)
MA(current) = { Price(past1) + Price(past2) + … Price(pastN) } / N
EMA(current) = ( (Price(current) - EMA(prev) ) x Multiplier) + EMA(prev) where the Multiplier = 2 / (N + 1) and N in the time period is the fixed period one
Percentage EMA uses a set percentage multiplier and the above equation.
In EVA (3), multiplier is 2/(3+1) or .5 and the FORMULA:
EMA(current) = ( (Price(current) – EMA(prev) ) x Multiplier) + EMA(prev)
Ex: EVA at period 3 is (29.22 – 22.94)(.5) = in oval using fixed period of 3 example.
CLOSE
MA (3 day)
EMA (3)
23.00
22.87
22.94
29.22
25.03
26.08
20.90
24.33
23.49
26.55
25.56
25.02
26.85
24.77
25.93
20.33
24.58
23.13
19.88
22.35
21.51
30.33
23.51
25.92
26.00
25.40
25.96

10. Graphing SMOOTHING by MOVING AVERAGE & EXPONENTIAL MOVING AVERAGE
EMA (in yellow) is subject to quicker turns than a simple MA is.

11. Using 70 day EMA
SELL BUY SELL
If buy when price is above 70 day EMA and sell when below, then sell in mid MAY, buy back again in mid October, and sell again in the later period.

12. 3. Relative Strength & RS Index
March 2,
2017
RSI = 93.
Says we are
overbought.
RS can be just the ratio of 2 stock prices, say Ford/GM and how they move.
The RSI oscillates between zero and 100. RSI = 100 – [100 / ( 1 + (Average of Upward Price Changes / Average of Downward Price Changes ) ) ] (can be daily, weekly, monthly, etc.)
SI is considered overbought when above 70 and oversold when below 30.

13. 3. Advance/Decline Ratio
A market-breadth indicator compares the number of stocks that closed higher with the number of stocks that closed lower than their previous day's closing price.
The A/D ratio can be calculated for various time periods, such as one day, one week or one month.

14. 4. Basics of Elliott Waves
Market cycles are composed of two major types of waves
Impulse Waves
and Corrective Waves
Every impulse wave can be sub-divided into a five wave structure
Corrective waves can be sub-divided into three.
Total waves = 8

15. Waves Within Waves Elliott Waves are fractal in nature.
'Fractal' means that they are built from similar patterns on both larger or smaller scales.
The waves appears in long-term yearly market charts as well as short-term hourly charts.
Total number of waves = 34

16. Types of Impulse Waves Extended first impulse, #1
Extended second impulse
Extended third impulse
Extension means the wave is elongated in nature
Only one wave is an extension
Sometimes impulse waves collapse
But they follow rules
, #2 (never the shortest)
, #3
#1 #2 #3

17. 5. Dow Theory & Confirmation
Dow Theory like Elliot Waves:
Primary trends have three phases. A primary trend will pass through three phases.
In a bull market, these are the (1) accumulation phase, (2) the public participation (or big move) phase and (3) the excess phase.
In a bear market, they are called the distribution phase, the public participation phase and the panic (or despair) phase. 
Under Dow theory, a major reversal from a bull to a bear market (or vice versa) cannot be signaled unless both indexes (traditionally the Dow Industrial and Transports or Rails) are in agreement.
Confirmation!

18. Head and Shoulders (not the shampoo!)
Head and shoulders formation occurs when a market trend is in the process of reversal either from a bullish or bearish trend; a characteristic pattern takes shape and is recognized as reversal formation.

19. 7. Cumulative Volume Index (CVI)
If someone wants to buy a lot of shares, volume rises.
If someone wants to sell a lot of shares, volume rises.
Volume matters! Both for a stock and the market.
Subtract the total number of declining stocks from the number of advancing stocks. CVI or Cumulative Volume Index = Prior Day's CVI + (# of advancing stocks - # of declining stocks)
A downward sloping CVI is bearish and an upward sloping CVI is bullish.

20. 8. The Short Ratio – a weak measure
A Measure of Sentiment
Divide the amount of stocks shorted by the average daily volume for a stock.
Short sellers are potential buyers sooner or later and represent a lot of buying power when they have to scramble for cover in a sudden market turn.
Contrary indicators require at least some degree of pessimism in order to function and therefore you should be skeptical of this ratio.
SPY
SRI
If short interest is rising on
a stock, it may offer a bunch
of new buyers or
maybe they know
something.

21. 9. New Highs & New Lows Also a breath measure.
Record High Percent = {New Highs / (New Highs + New Lows)} x 100
High-Low Index = 10-day SMA of Record High Percent
Declining Hi-Low index is a sell signal but a late signal.
OEX in 2010

22. 10. Moving Average Convergence-Divergence (MACD)
MACD is an updated price momentum indicator (Gerald Appel) which includes a signal or trigger line.
It is a smoothed oscillator based on the point spread difference between two exponential moving averages, constructed as a (Short – Long) oscillators.
A 26 day EMA (long) & a 12 day EMA (short)
The difference (short - long) is MACD line
9 day EMA to form the SIGNAL or TRIGGER line
Buy when MACD crosses Trigger Line
“You don’t have to understand the concept behind a technical indicator to use it; you just need to know what to ask the computer to do with it” -- Cyber-Investing, Brown & Bentley, 1995, p. 62

23. 26 Day Long 12 DAY Short Divergence= MACD-Trigger
(short-long)
& Trigger
As 9 day
EMA
Divergence=
MACD-Trigger
MACD crosses Trigger Line is an early buy indicator

24. Two Moving Averages (for momentum price oscillators)
Short run moving average emphasizes what is currently occurring
Someone could be accumulating shares and bidding the price up
Someone could be dumping shares to bring it down
A long run moving average is the base line against what is happening generally
When the short run crosses the long run, we see momentum in the price (BUY).

25. Momentum Price Oscillator
A Price oscillator is the difference between a short and long exponential moving average as a percent or as an amount
For British pounds, I used 9-day and 25-day periods.
The oscillator is positive when the 9-day is above the 25 day line
When line goes above zero, buy as the 9 day is above the 25 day
It is good in a trending market, but it whipsaws with too many trades in sideways markets

26. SOX is the semi-conductor index. Top box: shows 200-day simple MA
SOX index
200 day MA
SOX is the semi-conductor index. Top box: shows 200-day simple MA
Bottom box: shows blue MACD line of 12 day EMA – 26 day EMA
Red line is 9 day EMA of MACD which is a signal or trigger line. Divergence is the difference between MACD and its 9-day EMA. The histogram is positive when MACD is above its 9-day EMA; negative when MACD is below its 9-day EMA.

27. 4 Traps of Technical Analysis
Most technical buy & sell indicators occur too late
Often the first few days of a market move includes 2/3rd of the total upward or downward correction. If missed, there is much less to be had.
Many technical indicators switch on and off too often, leading to excessive trading costs
Stop loss orders can leave you out of the stock, then buy it back, eating up profits.
Some technical indicators keep you out of the market for years
Hard to explain to clients if you keep them out of stocks for long, long periods.
4. Communists view of the failure of the USSR – “The Soviets just didn’t do it correctly.” All test failures are blamed on inexact methods rather than the technique.

28. Online Financial Data Bloomberg https://www.bloomberg.com/markets
Value Line – sample
Investor’s Business Daily – online
Financial Times – online
SEC Edgar – online
St. Louis Federal Reserve FRED – online econ data