OPENING POSITION
February 2004
According to Gary Kaltbaum, host of the nationally syndicated radio program "Investor's Edge" and the subject of the STOCKS & COMMODITIES interview of the month, the slip in the US dollar has not affected the markets thus far, but it may come back to haunt them one day. These fundamentals are the kind we must keep an eye on when the markets are trending strongly. Since March 2003, the broader indexes - the Standard & Poor's 500, the Nasdaq Composite, and the Dow Jones Industrial Average - have been rallying, Saddam or no Saddam. The same can be said of the global markets. In fact, it's nice to pick up the newspaper and see positive numbers when it comes to economic indicators. Europe is seeing strength, as are Asia and Latin America. Yes, it's quite a change from the dreary days we were getting used to. But all this positive news doesn't mean you can blindly put your money in the markets and watch it grow. You still have to analyze the markets one day at a time. If you take a long-term chart of any of the broader US indexes - that is, 10 years or longer - you'll see that this rally is a relatively small rise.
It goes without saying that when you play the markets, you have to make sure you stay on the right side of the trend. Although there are numerous ways of doing this - we have all seen endless lists of trend-following indicators - one you may want to add is the heikin-ashi technique, which is a twist on traditional Japanese candlestick charting. The article "Using The Heikin-Ashi Technique" by Dan Valcu (starting on page 16) will show you how to apply this trading technique to detect strong trends. It comes in handy because, after all, when you are trading a market that is displaying a strong trend (up or down), you should stay in the trend as long as it holds, be it one day or a few months. But how do you know if the pullback that inevitably comes is a correction or a reversal? The article "Swing Trading With Swing Charts" by Teresa Lo (which begins on page 58) walks you through various examples so you can get a feel for market behavior and get out of the trend when the market displays a reversal. In addition, in the interview starting on page 76, Gary Kaltbaum describes the various market characteristics he looks for. He likes to trade emerging trends that appear after a stock has been consolidating for a while. Other variables he looks at include the 50-day moving average and sentiment indicators.
Nobody wants to be caught by surprise when something like the falling US dollar comes back to haunt the market. We hope that the techniques in this issue will help you make intelligent and profitable trading decisions.
Jayanthi Gopalakrishnan,
Editor
Originally published in the February 2004 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2004, Technical Analysis, Inc.
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