The following is an in-depth video on how to analyze a market, specifically the S&P 500, using technical analysis.

A couple things this video will point out:

• Using past market tendencies to predict future movement
• Measuring trends using fibonacci
• Distinguishing between end and beginning of trends
• Relationship between MACD and price movement
• Spotting possible price targets

View video – Is S&P 500 Getting Ready to Skyrocket or Collapse?

While it seems like a relatively simple idea, the theory behind this is essentially seeing how one security moves dependent on another. For example, what would happen to an oil based security as the price of crude oil increases?

Obviously, we could put these two charts side by side, but with ranging scales and prices it would be whole lot easier if we could just overlay securities on top of each other.

By using a free service, such as SharpCharts over at StockCharts.com, we can easily compare up to 4 securities.

Steps to comparing multiple stock charts.

1. First enter the base stock or index you want to chart.

2. In the parameter options below, choose “Price” from the drop down box and then insert your ticker symbol in the corresponding field. Make sure to also select “behind price” in the position drop down box.

You can add up to 3 securities using this method, which is 4 all together.

In reference to the markets, volatility stands for how much or how quick stocks move up and down:

• High volatility: Prices are spiking up and down.
• Low volatility: Prices are more steading.

Depending on what type of trader will determine the optimal volatility level for you:

• If you are an active trader, then you will like a higher volaility because it allows for quicker profits and more opportunities.
• Long-term traders prefer periods of low volatility, which could allow for more constant growth.

The most popular volatility index is the Chicago Board Options Exchange Volatility Index with a ticker symbol of VIX, $VIX, or .VIX. This index measures the volatility of the S&P 500 index options. A high value corresponds to a more volatile market and therefore more costly options, which can be used to defray risk from this volatility by selling options. Often referred to as the fear index, it represents one measure of the market’s expectation of volatility over the next 30 day period.

How VIX correlates with the S&P 500

In the images below you can see how the VIX correlates with the S&P 500 over a given period.

VIX educational videos (Fact or Fiction)

Below are some videos courtesy of Chicago Board Options Exchange (CBOE) about the VIX.

Ben Londergan, Co-CEO, Group One Trading, discusses the CBOE Volatility Index

Fact or Fiction Part 1 of 5

Fact or Fiction Part 2 of 5

Fact or Fiction Part 3 of 5

Fact or Fiction Part 4 of 5

Fact or Fiction Part 5 of 5

Further Reading
CBOE Research Paper,“VIX – Fact & Fiction,” (PDF) The 5 most common misconceptions about VIX.

Image Credit: CBOE Volatility Index Chart

In this latest example, we are going to look at a chart of AIG. In just a few months the stock basically dropped from 400 to below 10. Then out of nowhere the stock just started to move higher… thanks in large part to earnings… which were still pathetic… but that is another story.

I was never really tracking AIG; however, a friend of mine informed me about the massive jump in price. This was when the stock was at $15, which now seems like a steal at this point; nonetheless, I just ignored it assuming the stock will come back down.

Remember that trading is almost 100% perception. Ultimately, analyzing the fundamentals of a company involves trading with emotion. You tell yourself there is no way this stock can move higher. The beauty of technical analysis is that you simple play what the charts tell you, and block out the emotions.

Had I not made the mistake of putting more emphasis on fundamentals and actually put more focus on technical analysis, I might have been enjoying a 100% return in just a couple weeks.

Example of technical analysis at its finest…

By looking at the chart above, you can clearly see the technical indicators that should have made you believe in this upswing.

1. The stock first started a mini wedge pattern into its consolidation phase. The breakout was met with extremely large volume.

2. The second move that should have helped us believe in this stock was the push above the 50 day simple moving average (SMA). Again, there was larger than normal volume.

3. This move was than followed by a bump on the 200 SMA, and a retreat towards the 50 SMA. Good spot for entry had you not been in yet.

4. Then, with significant volume, this stock breaks passed the 200 SMA.

5. Finally, all this move was in coordiation with extremely nice volume and the relative strength index (RSI) breaking over 50.

So you can clearly see that there were 5 absolutely clear reasons that should have easily had us making money on this upswing in AIG.

To learn more about technical analysis and how to accurately predict stock price movement, check out Chart Pattern Manifest.

Most of the time, a user will have more than one period of moving averages in their charts… usually 50 and 200. Obviously based on your time frame, depends on how high or low you set your moving average periods.

While we already know about using moving averages as instances of support and resistance, there are other technical indicators that multiple moving averages can give off. The best is example is when moving averages crossover each other.

There are basically 2 meanings behind this:

1. Its bullish when lower moving averages crossover higher moving averages. Example: 50 SMA crossing over 200 SMA.

2. Its bearish when higher moving averages crossover lower moving averages. Example: 200 SMA crossing over 50 SMA.

As you can see, this is pretty much common sense. Obviously, if the 50 SMA is crossing the 200 SMA, then that means the average over the last 50 days is faster than the prior 200; thus, a bullish sentiment is released.

As you can see in the chart above, once the 50 SMA crossed over the 200 SMA, the stock really took off and increased in price.

It is important to note that moving average crossovers are used to purely determine trend, and not part of determining respective price targets.

With the help of MarketClub, we were able to get this video analysis of gold together. Who knew that we would actually use this as more of a teaching tool.

This video is packed with some pretty interesting content…

Of course, I have already mentioned energy fields, which equivocates to little consolidation breakout patterns. This video also takes a look at the head and shoulder examples.

Take a second to watch this video and see how a professional breaks down gold and uses technical analysis to do it.

Watch video – Energy Fields

• Support and Resistance (StockCharts)
• Support and Resistance Basics (Investopedia)
• Support and Resistance 2 (Wikiepedia)
• Technical Analysis Basics: Support and Resistance (Million Dollar Journey)
• Support and Resistance Part 1 (Learning Markets)
• Support and Resistance 3 (Incredible Charts)
• The Simple Keys To Winning Trades (Wealth Daily)
• Support and Resistance 4 (Swing-Trade-Stocks)
• Support and Resistance Levels (The Stock Bandit)
• Understanding Support and Resistance (About)
• Support and Resistance 5 (Metaquotes)
• Understanding The Importance Of Support And Resistance (RightLine)
• Support and Resistance Reversals (Investopedia)
• Day Trading Lessons – Support and Resistance (YouTube)
• Support and Resistance Trading Benefits (TradeStalker)
• Understanding Support and Resistance 2 (Traders Log)

There is mathematical equation, but most people will utilize RSI within the tools of a chart. The only customized option for RSI is the period length you want to examine. Obviously long-term traders will prefer extended periods such as 30, while many swing traders will find 14 more significant. It is up to the trader to play around and determining which is best for them.

If you are familiar with stochastic, then understanding RSI won’t be too difficult. The main difference is the cycle number of 30 to 70.

Relative Strength Index Uses

Overbought/Oversold

In general RSI ranges between 30 and 70. Below 30 classifies oversold and above 70 distinguishes overbought. Many traders look at RSI falling below 70 as a bearish signal and breaking above 30 as a bullish indicator.

Centerline

The middle of the range stands at 50, and can also be used as various confirmations of different price movements. Consider RSI coming from 70 and bouncing off 50 to head higher. That is looked at as a bullish indicator. Obviously, the opposite of coming from 30 and bouncing down off 50 is looked at as bearish. Traders also look at a crossover of the line as final confirmation that the stock’s current momentum is ready to change.

Example

As you can see from the chart above, RSI does a good job of predicting change in momentum. Within this example, the 50 line acted as a pretty substantial barrier. Until Intel was able to move past it, the stock could never really head higher.

Where the stock stands now, if the RSI was to head below 50, then that would be a bearish indicator.

We can see this clearly in the following examples:

In the chart below, Netflix steadily rose higher. We can clearly see the breakout spots and the unusual volume size on all of them.

In this next chart, we see that the stock was looking to move into a new trading zone; however, if you paid attention to the volume of the break above the resistance (blue line), then you would have been a little skeptical of the move. As you can see, the stock did not breakout and actually headed lower.

The key is to take notice of what the average volume is, and then determine what is considered lower and higher than normal volume.

The price target, which was the measurement from the head to the neckline, of about $4 played out perfectly. If we were playing this stock at the time, then we have waited for the stock to breakthrough the neckline after creating the peak of the right shoulder.

A break below the neck would either tell you that this stock is not a buy and stay away or you would short it using the $4 price target of $16. That neck than becomes a resistance.