Basic Investment Decision Making Based on Chart Analysis

 

Basic Investment Decision Making Based on Chart Analysis 

■ Describe the climate or environment in which the stock is trading in bullish and bearish terms (i.e., an analysis of the index or broad market) 

■ Describe the outlook for the stock in bullish and bearish terms 

■ Describe the various participatory options available in the stock with respect to the risk capacity and expectation

■ Clearly identify actionable price levels in the stock (i.e., entry points, take profits, and stoploss levels) 

 

1. Advice for the Long‐Term Investor  (Bullish Outlook)

 

 

2. The Climate in Which the Stock Is Trading (the Index)

            Referring to the long term chart in Figure A.7, we see that the Dow Jones is currently making higher highs and higher lows, indicating that the prevailing uptrend is still intact. 

We also see that the index is still being supported by two uptrend lines, 2 and 3, and that the index is currently above both the 50 and 200 week moving averages. 

Referring now to the medium term chart as seen in Figure A.8, 

we notice that the index is currently bullish with respect to the Ichimoku indicators.

 The index is currently above the cloud. It is also above both the Tenkan‐sen and Kijun‐sen. We also observe that the Chikou Span is above both the cloud and price. 

The RSI is also trending upwardly and has not breached its own support line. 

All this indicates that the current climate in which the stock is trading is still bullish. 

Evidence for Maintaining That the Stock Is Bullish over the Long Term 

Referring to a medium term chart as in Figure A.1, we see that the stock is currently testing a support zone around $500 to $520. The longer it stays at or above this support zone, more bullishness is expected as it implies that the support is strong. 

We also notice bullish divergence in the volume action (3) and MACD (3) and (4).

The stock price is also currently at the lower Bollinger Band, indicating potential support. On the other medium term chart seen in Figure A.6,

 we observe that the stock is currently finding support at CD. As long as the stock stays above the support, our bullish view remains intact.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          In Figure A.2, we notice a five wave formation, suggesting a potential short‐term move up to meet the downtrend line (2). We can clearly see the current spinning top, which is a bullish signal. We are also aware of a developing pattern of cycle lows with the new low expected around the current time (3). Again this is bullish.