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The Morning Cup of Jo


Gotta love it when a plan comes together!


"Good morning," says Hoofy as he walks into the coffee house and has his first 'Jo.' "The techs may be down, but has anybody seen the Nikkei?"

It looks like the overseas action was placed in the Japanese market last night. The Nikkei broke above the neckline in the Head & Shoulders pattern we talked about last week. Not only is the ST price action positive, but also the LT chart has confirmed a Large Cup & Handle pattern. (A Cup & Handle pattern, in very simple terms, is one in which there is a large rounded base followed by a smaller rounded base - normally about ¼ to 1/3 the size of the first.)

When looking at breakouts, especially on indices, a trader may want to glance at other road signs (technical indicators) as well. So let's look at the ST and LT MACD (Moving Average Convergence/Divergence) since both price patterns are showing significant breakouts.

The MACD does just what it says; it measures the convergence and divergence between 2 distinct exponential moving averages (EMA) - one short and one long. (Usually a 12 and 26 period are used) The theory being, as the slow crosses over the long, whether being at the top or bottom, this presents a buy signal. The interpretation is that when a shorter term EMA crosses a longer term EMA the velocity is increasing in the opposite direction of the current trend. But, please remember - momentum indicators measure velocity not price and just because a momentum change occurs doesn't guarantee price trends will. It's simply another way to put the weight of evidence in your favor for a particular trade.

Let's take a look...

WONDA Copyright 2004 William O'Neil + Co.,Inc. ass rights reserved

As you can see the Daily MACD has showed a buy signal 6-days ago - adding another arrow to our quiver. Now let's take a look at the LT chart...

The MACD has not yet crossed, but there is significant evidence to believe that it may.

As for the US markets, there is a substantial amount of economic data coming out this week, the other professors will be discussing. This will help determine whether the Nasdaq will pull the Dow and S&P below their trend lines or they will assist in levitating the Nasdaq back above its trend line. Only time will tell.

Until next time...


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