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Capitaland: Technical analysis can be simple.

Monday, March 19, 2012

Some readers asked me if I could teach them technical analysis. I have always declined, saying that it is easy enough to pick up. There are many good books out there and many good websites where one could pick up technical analysis.

Technical analysis can be quite simple. For example, this weekly chart for Capitaland shows the MACD rising in a wavelike pattern into positive territory. This means that longer term momentum has turned positive. It is also quite clear that price action broke out of a base formation and has seen a reversal in trend.

Now, does technical analysis tell us if the price would continue to rise or fall? I would be hesitant to say "yes". Technical analysis shows us resistance and supports. It shows us the probability of something happening but never certainty.

In this instance, technical analysis tells us that there is probably resistance at $3.25 in the event that the share price continues to rise. It also tells us that immediate support is probably at $2.75 in case of a pull back. $2.75 is the top of a double bottom formation and it is also where the 50w MA has flatlined. It is also where the rising 20w MA could form a golden cross with the 50w MA in the coming weeks.

Anyone who is thinking of going long would probably be happy doing so in case of a pull back to $2.75 thereabouts while anyone thinking of selling could do so at $3.25. Simple enough? Just don't think of technical analysis as the Holy Grail.


INVS 2.0 said...

Hi Ak71,

There are many versions of TA to learn. I learnt the versions of Adam Khoo, Warren.B, Gragham's but never liked them as they were too complicated for REITs. I don't play complicated growth stocks anymore. Glad that I came across your blog and learnt your version for REITs. Yours is relatively clear and easy to understand. Thumbs up for you! :) :)

INVS 2.0 said...


Anyway, I think this is your first post on TA?

AK71 said...

Hi INVS 2.0,

Yes, there are many sects and many clans in TA and FA. Just like there are many schools of Chinese Kung Fu. ;p

It is important for us to find one that works for us. However, I also like to keep an open mind and explore new ideas which capture my fancy. Otherwise, I like to keep things simple. :)

I have not really blogged about TA exclusively in great breadth or depth. I feel that I would be duplicating the efforts of so many others.

Investopedia is a great online resource and I always ask people why pay to attend classes when there is Investopedia et al? ;p

I am glad you have found my blog posts clear and easy to understand. :)

Wealth Journey said...

Agreed with INVS.

Your clan of Reit kung-fu is much more convincing to me :) I am a convert of Reits because of you.

But I still do my own things. I still buy those reits you never mentioned. lol.

AK71 said...

Hi WJ,

I am a person of modest means. Otherwise, I would spread my net a bit wider to include the REITs that you bought into which I do not mention about in my blog. ;p

I certainly hope that investing in REITs has been rewarding for you as it has been for me. :)

BC said...

Hi Ak71,

Well written on TA and I agreed what you said: TA can be simple.

What is needed is time and discipline to do it every day/week. It get easier as you do it years after years. Initially it is always difficult.

I came across some people who gave up after a few tries; while some added too many indicators....worst, some try to trade intra-day using daily charts.

AK71 said...

Hi BC,

Yes, like with so many things in life, practice makes perfect although I am far from being perfect. ;p

As I grow older, I crave for simplicity and appreciate simple things much more. :)

Ray said...

haha, the thing is it may take more than a correction for CapLand to come back to $2.75 :)

In other words, the next time CapLand comes back to $2.75, it may be the return of the bear? Then, would we wanna buy in at that price? Hard to say...

Drizzt said...

simple things might eventually lead to people thinking it is safe.

TA is not simple.

AK71 said...

Hi Ray,

Well, technically, a 10% pull back would see CPL at $2.75 or so and that is within the limits of a correction. The return of the bear would mean a decline in price of 20% or more. Let's cross the bridge when we come to it. :)

AK71 said...

Hi Drizzt,

I disagree. TA can be simple but it might not be simple. It is Mr. Market that is complicated and, sometimes, perverse. ;)

INVS 2.0 said...

Hi Ak71,

Coming back to this post, I have noticed that you are frequent on MFI, Stochastic and OBV, care to share when is the appropriate time to use these indicators? :)

AK71 said...

Hi INVS 2.0,

MFI is a momentum oscillator. I prefer it to the RSI because it takes into consideration price and volume whereas the RSI only takes in price. I like to look for divergences between the MFI and share price as a confirmation of what I might observe in the MACD.

Stochastics is also a momentum oscillator. It is particularly useful when a counter's share price is range bound. It helps to confirm buy and sell decisions. Buying when it is oversold and selling when it is overbought is safer.

OBV shows accumulation and distribution activities in one line. The simplicity is appealing to me. If OBV goes up as share price is coming down, it shows smart money accumlating. If OBV goes down as share price is going up, it shows smart money distributing. ;)

INVS 2.0 said...

Hi Ak71,

Thanks for the sharing caring session. :)

AK71 said...

Hi INVS 2.0,

You are welcome. Please visit my sponsors hor. ;p

Drizzt said...

there seem to be a flood of advertisement from alot of other sources. some starting to be very unrelated. i wonder that is going to be the case from now onwards.

AK71 said...

Hi Drizzt,

One of the things I said in this blog very early on is that it is not just about investment. That was why I started a "Tea with AK71" section too. ;)

So, I am not too picky when it comes to advertisers. Indeed, I am surprised by the response to certain "unrelated" ads. For example, one of the more popular ads was by Lancome! Cosmetics! :)

Of course, to be fair, I don't have much control over what kind of ads Nuffnang or Adsense assigns to me.

Thanks for visiting my sponsors. ;)

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