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The Morning Cup of Jo!


I love it when technical analyses come together!


Trademark Pending

Professor Collins just mentioned Wendy's (WEN: NYSE) on Buzz and Banter and referred to Professor Reamer's article yesterday. I pen this piece to solely help demonstrate a technical point about the relationship between different types of technical analysis and a question many technicians ask themselves often. {Which of the theories do I use and which one is better?}

This example is used to demonstrate one very simple observation; focus on what works for you! You don't need to be an expert in every field of technical analysis to make money nor to come to the same conclusion. Please don't get me wrong, I have all the respect in the world for Professor Reamer's expertise and he never ceases to amaze me with his commentary. However, being an anal, type "A" personality, I always see if my trend line analysis coincided with his Fibonacci analysis. Two heads are better than one. One of the reasons Minyanville is a Great place to live.

"Minyanville is not a specialized store; it's a store of Specialists!"

Anyhow, onto my point...

Professor Reamer stated there is serious resistance on the Fibonacci levels around the $37.30 to $39.40 price. As a point of technical comparison between trend line analysis and Fibonacci analysis I felt it prudent to show this graph.

Below you will notice three red lines of resistance. The top line is simply the downward trend beginning back in February. The second line down is the 1st Floors & Ceilings resistance starting back in October of last year. The bottom line is the 2nd Floors and Ceilings resistance, which began back in September of last year. Notice how they all converge at $39.00. Now that's some serious resistance!

WONDA William O'Neil + Co., Inc. All rights reserved.

Conclusion: Use what works for you. Having a working knowledge of all the philosophies, I believe, is very important, but don't try to know everything about every philosophy of technical analysis. Whether you use Point & Figure, Trend line, Fibonacci or Candlestick; be an expert at the one you are devoted to.

While I have the graph here, and for further educational purposes, I thought I'd point out a few other points. I have drawn in some other Road Signs relating to a potential move in the stock up into the $39.00 resistance level. WEN, over the last 2-months, has built a Cup and Handle base with a neckline of $37.30. Coincidently, or not, this is Prof. Reamer's 1st resistance point. This pattern, yet simple, can be used for a potential breakout scenario into the next resistance; which we've already concluded is huge. Another Road Sign, that I love to use, is the Stochastic Divergence. Observe how June's relative low undercut the reaction low in May and the Stochastic did not follow suit. This is something you want to see if you're looking to go long the stock. Stochastic Divergence.

However, there always has to be a however, I personally would not be buying WEN on a Breakout above $37.30 because for me and the type of trading I do, there is not enough profit before the next (SERIOUS) resistance point. For day traders this might be an expectable move. Now, if the stock moved above $39 with a decent technical pattern and massive accumulation volume, I would become much more interested in taking a position.

Side Note...

I would rather pay a higher price with less risk (resistance), than a lower price with more.

Don't forget -- the Minyanville Dow 100-Year Charts are now available in the Gallery for the Arts!

I sincerely hoped this helped!!

Thanks Collins!!!


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