Charting for Real People

1. Charting for Real People Michael Kahn, CMT November 2011

2. Agenda • The basics • Get the feel for the market • Does it agree with the fundamentals? • Or at least not disagree? • Intangibles

3. Who am I? Chartered Market Technician (CMT) • not a Certified Massage Therapist • trained and certified in market analysis Columnist – Barron's Online Newsletter Editor – Quick Takes Pro Former charting software designer – TradeCenter II …and beaten up enough by the markets

4. What do I do? Help investors assess risk and reward. no crystal ball no tea leaves no chicken entrails

5. Possible Goals • Sanity Check • Just how good is the STOCK of a COMPANY with good fundamentals? • Determine Aggressiveness • Buy a lot? Or a little? Or none? Or Sell it? Next – the basic concepts of what we analyze

6. Price Rules! • Price - The stuff you put in the bank In price, there is knowledge. Alan Shaw, CMT, Chief Technical Analyst. Smith Barney, retired Ralph Acampora, CMT, Chief Technical Analyst, Prudential Securities, retired

7. Volume is next • Volume – How much money is moving In volume, there is truth. Dennis Jarrett, Jarrett Research

8. Momentum • Momentum – How fast it got there

9. Structure (Patterns) • Structure – Trends and Patterns

10. Sentiment (Fear and Greed) • Sentiment I feel good! Whatever He’s gonna eat us!

11. We got game! • Price • Volume • Momentum • Structure • Sentiment

12. Looks like a cheaper place to buy How many times have you thought, “My stock is on sale, let’s buy!”

13. The trend said it all

14. What does the market have to say?

15. The trend said it all

16. The trend said it all Quiz – do you see anything now?

17. Jargon alert! Squiggly line in next chart

18. Indicators said when it was time to return

19. Indicators tip you off to changes

20. Indicators said when it was time – or not

21. Jargon alert! Weird terms in next chart

22. Indicators said when it was time – or not O’Neil Follow-Through Day

23. Indicators said when it was time – or not O’Neil Follow-Through Day

24. Does something look wrong here?

25. Does something look right here?

26. It’s Good to Side Step One of hedge fund manager John Paulson’s top Q2 buys.

27. It’s Good to Know When to Get Back In Redemption for a former bear.

28. Sanity Check • Is the trend long in the tooth?

29. Sanity Check • Is the trend long in the tooth? • Are you the last to be invited to the party?

30. Sanity Check • Is the trend long in the tooth? • Are you the last to be invited to the party? • Is your broker calling you with a new investment in the super bull market in *XXX that should last for years? * how about rare earth minerals in 2011

31. Sanity Check • Is the trend long in the tooth? • Are you the last to be invited to the party? • Is your broker calling you with a new investment in the super bull market that should last for years? • Are they ridiculing the bearish commentators (such as yours truly in April)? • Or for early 2009, were doom and gloom forever?

32. Quiz Time • Question - What does it mean when the neighborhood tavern has CNBC on the television and not ESPN?

33. Quiz Time • Question - What does it mean when the neighborhood tavern has CNBC on the television and not ESPN? • Answer - the market is not at a bottom

34. Quiz Time • Question - What does it mean when the guys on the football team are talking about how much money they are making trading?

35. Quiz Time • Question - What does it mean when the guys on the football team are talking about how much money they are making trading? • Answer - the market is not at a bottom

36. Quiz Time • Question - What does it mean when your doubles tennis game is talking more about trading and less about the tuna on rye at the coffee shop?

37. Quiz Time • Question - What does it mean when your doubles tennis game is talking more about trading and less about the tuna on rye at the coffee shop? • Answer - the market is not at a bottom

38. Quiz Time • Question - What does it mean when the banks are offering new interest only mortgages?

39. Quiz Time • Question - What does it mean when the banks are offering new interest only mortgages? • Answer – the real estate market is not at a bottom……(sound familiar?)

40. Quiz Time • Question - What does it mean when there are whole aisles in the supermarket dedicated to the Atkins diet?

41. Quiz Time • Question - What does it mean when there are whole aisles in the supermarket dedicated to the Atkins diet? • Answer – time to buy bread and cereal stocks

42. Quiz Time • Question - What does it mean when mutual fund and brokerage ads in Barron’s are scarce?

43. Quiz Time • Question - What does it mean when mutual fund and brokerage ads in Barron’s are scarce? • Answer – the market is not at a top.

44. Quiz Time • Question - What does it mean when Merrill Lynch closes their commodities trading desk?

45. Quiz Time • Question - What does it mean when Merrill Lynch closes their commodities trading desk? • Answer – the commodities market is not at a top

46. Quiz Time • Question - What does it mean when everyone is talking about the Great Depression and Financial Armageddon?

47. Quiz Time • Question - What does it mean when everyone is talking about the Great Depression and Financial Armageddon? • Answer – It’s March 2009! • The AAII survey showed 70.27% bears on March 5. Unprecedented.

48. Up is good, down is bad.

49. Up is good, down is bad.

50. Up is good, down is bad. Trailing P/E now 50