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Thursday, 20 September 2007 |
When Indicators Contradict
Before any technical analysis study begins, the first chart you should examine is a long-term chart. Finding the overall trend pattern is crucial to finding and riding a long position profit. Although technical analysis is best used for short term trading, it is still possible to find trend reversals, and possible durations of fluctuations.
We begin by examining TiVo's long term chart. The price appears to be very volatile. One thing is certain though, Volume has increased over the last year, demand has increase over that year, and the speed of momentum has increased over that year. This is a form of positive divergence as well since the price has had a minimal deviation in the last few months.
Since the price is very spikey in the last 3 months, we decided to overlay the chart with an exponential moving average (EMA). This helps to smoothen out the overlay more so than the SMA would. Note that the 4 day moving average is above, not by much, the longer term moving averages.
What is even more phenomenal about this equity is the increasing demand, yet decreasing volume. This is why we chose to study TiVo this week. Many times in a study you will find contradicting indicators and themes. If this is the case, you must rely on divergences rather than what the actual indicators purpose is illustrating.
So far, we can see that the price trend has a slightly downward sloping shape, volume is decreasing, yet the demand is increasing. Right now, the MFI is positively diverging. This is not substantial evidence to place our bets and purchase the security.
Finally, we will throw some other indicators over the chart to confirm any positive indicators. All we see is that the RSI remains increasing.
Pay attention to the declining Chaikin Money Flow (CMF). This is contradicting our increasing MFI. Now we can say that based on all other confirmations, this would not be a safe investment.
Tags:
Chaikin Money Flow,
chart indicator,
chart pattern,
divergence,
Divergences,
EMA,
indicators,
indicators trading,
Market Commentary,
stock investing,
Technical Analysis,
technical analysis,
technical indicator,
trade Confirmation,
trading articles,
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