1
1. Trend & Momentum
“The Trend is Your Friend”
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2
A. Philosophy of Supply and Demand
Viewing the Company versus the Stock
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3
A. Philosophy of Supply and Demand
Support and Resistance
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4
A. Philosophy of Supply and Demand
S&P 500 Stock Index - Weekly H,L,C
S&P 500 - Weekly
Cyclical bull market
Cyclical bear market
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StockCharts.com
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5
A. Philosophy of Supply and Demand
NASDAQ 100 Index - Weekly H,L,C
NASDAQ - Weekly
Secondary trend
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StockCharts.com
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6
A. Philosophy of Supply and Demand
Dow Theory and the Ideal Marketplace
Top
Uptrend
Downtrend
Bottom
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7
A. Philosophy of Supply and Demand
Dow Theory of “Confirmation”
DJIA and DJTA - Weekly - May 2002-May 2005
DJ Industrials - Weekly
Confirmation
of New High
in Transports
DJ Transports - Weekly
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New
High
StockCharts.com
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8
A. Philosophy of Supply and Demand
The Trend
Uptrend
Downtrend
Lower
Peaks
Higher
Peaks
Higher
Troughs
Lower
Troughs
Sideways Trend
Horizontal Peaks
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Horizontal Troughs
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9
B. Chart Construction
Line Chart of Daily Close for Walt Disney Co.
2003 - 2007
Disney - Daily
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StockCharts.com
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10
B. Chart Construction
Weekly Bar Chart for Krispy Kreme Doughnuts
December 1, 2002 - August 22, 2007
Krispy Kreme - Weekly
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StockCharts.com
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11
B. Chart Construction
Monthly Bar Chart for Cisco Systems, Inc.
1995-2005 (logarithmic scale)
Cisco - CSCO
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StockCharts.com
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12
B. Chart Construction
Definition of Candle Terms
Drawing the Candle Lines
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13
B. Chart Construction
Alleghany Technologies, Inc.
One point ($1) box and 3 box reversal
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14
B. Chart Construction
S&P 500 SPDRs (SPY)
1 pt/box; 1 box reversal chart - daily
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StockCharts.com
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15
C. Trend Analysis
Support and Resistance Zones
February 7, 2005 - April 22, 2005
Walt Disney - Daily
A
C
E
F
B
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D
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16
C. Trend Analysis
High-Volume Reversal
July 2, 2003 - August 27, 2003
Walt Disney - Daily
Resistance
Stops Rally
One-Day
Reversal
High Volume
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StockCharts.com
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17
C. Trend Analysis
Regression Line and One Standard Deviation
February 26, 2003 - September 11, 2003
Walt Disney - Daily
Regression Line from Low to High
+/- One Standard Deviation Channel
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StockCharts.com
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18
C. Trend Analysis
Trend Line
February 26, 2003 - September 11, 2003
Walt Disney - Daily
Uptrend Line
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StockCharts.com
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19
C. Trend Analysis
Trend Line with Channel Line
February 26, 2003 - September 11, 2003
Walt Disney - Daily
B
A
Uptrend Line with Channel Line
StockCharts.com
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20
C. Trend Analysis
Simple Moving Average
February 26, 2003 - September 15, 2003
Walt Disney - Daily
Regression
Line
One Std. Dev. about
Regression Line
60-Day MA
StockCharts.com
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21
C. Trend Analysis
2 Moving Averages - Crossover @ Support & Resistance Zone
February 26, 2003 - September 19, 2003
Walt Disney - Daily
Cross-Over
Where moving averages
cross is often a Support
and Resistance area
20-Day MA
60-Day MA
Crossover is a Signal in a Trending Market
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StockCharts.com
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22
D. Chart Patterns
Double Top with Breakout Down
Entry
Pullback
Breakout
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23
D. Chart Patterns
Triple Bottom with Breakout Up
Entry
Breakout
Throwback
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24
D. Chart Patterns
Descending Triangle with Breakout Up
Throwback
Breakout
Entry
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25
D. Chart Patterns
Diamond Pattern with Breakout Down
Pullback
Entry
Breakout
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26
D. Chart Patterns
Cup or Bowl and Handle Variety of a Rounding Bottom
with Breakout Up
Entry
Breakout
Throwback
Handle
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27
D. Chart Patterns
Head and Shoulders Top with Breakout Down
Head
Right Shoulder
Left Shoulder
Breakout
Entry
Pullback
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28
D. Chart Patterns
Harami Candlestick Pattern
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Spinning Top Can Be Black or White
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29
D. Chart Patterns
Evening Star and Morning Star Candlestick Patterns
Evening Star (top)
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Morning Star (bottom)
Spinning Top Can Be Black or White
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30
E. Mechanical Momentum Indicators
On-Balance Volume
July 22 - October 15, 2005
Apple Computer - Daily
On-Balance Volume (OBV)
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StockCharts.com
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31
E. Mechanical Momentum Indicators
Chaiken Money Flow
July 22 - October 15, 2005
Apple Computer - Daily
Chaikin
Money Flow
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StockCharts.com
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32
E. Mechanical Momentum Indicators
Moving Average Convergence-Divergence (MACD)
July 18 - October 17, 2005
Apple Computer - Daily


MACD
Signal Line
Overbought Line
MACD
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StockCharts.com
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33
E. Mechanical Momentum Indicators
Rate of Change (ROC)
July 18 - October 17, 2005
Apple Computer - Daily



14-Day Rate of Change (ROC)



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StockCharts.com
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34
E. Mechanical Momentum Indicators
Relative Strength Index (RSI)
July 19 - October 15, 2005
Apple Computer - Daily
14-Day Relative Strength Index (RSI)
Swing Failure
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Breakout
Triangle
StockCharts.com
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35
E. Mechanical Momentum Indicators
Stochastic
July 19 - October 15, 2005
Apple Computer - Daily


Overbought Downward Crossover
Swing Failure
and Breakdown
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Swing Failure
and Breakup
14-3-3 Slow Stochastic
Oversold Upward Crossover
StockCharts.com
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36
E. Mechanical Momentum Indicators - continued
Positive Volume Confirmation
Royal Gold - Daily
Royal Gold - Daily
Expanding volume
confirms rising
prices
Breakout
confirmed by
expanding volume
Volume
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StockCharts.com
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37
E. Mechanical Momentum Indicators - continued
Negative Volume Divergence
Pepsico - Daily
Pepsico - Daily
Uptrend Broken
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StockCharts.com
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38
E. Mechanical Momentum Indicators - continued
On-Balance Volume Confirmation
S&P 500 - Daily
S&P 500 - Daily
Positive Divergence
On-Balance Volume
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StockCharts.com
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39
E. Mechanical Momentum Indicators - continued
Open Interest
Copper Futures December 2005 Contract
Price
Open Interest
Volume
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40
F. Relative Strength
Price Trend versus Relative Strength
RELATIVE STRENGTH
1
P
R
I
C
E
T
R
E
N
D
1
1
2
2
3
2
1
2
3
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1
2
3
3
1
2
1 = Up
2 = Neutral
3
3
3 = Down
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41
F. Relative Strength
International Flavors & Fragrances
International Flavors & Fragrances
Relative Strength - International Flavors & Fragrances : S&P500
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StockCharts.com
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42
F. Relative Strength
International Paper
International Paper
Relative Strength - International Paper : S&P500
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StockCharts.com
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43
F. Relative Strength
Dow Jones US Food & Beverage Index
Dow Jones US Food & Beverage Index
Dow Jones US Food & Beverage Index - MACD
Relative Strength - DJ Food &
Beverage Index : S&P500
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StockCharts.com
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44
F. Relative Strength
Dow Jones Industrial Average
Dow Jones Industrial Average
Capital Goods : Consumer Goods
Capital Goods
Outperformance
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Consumer Goods
Outperformance
StockCharts.com
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45
G. Money Management
Portfolio Management
• Asset Allocation
– How much in stocks
• Security Selection
– What to buy
– When to buy
– When to sell
• Technical analysis is critical to answering
“when?”
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46
G. Money Management
Investment Policy - Why It Matters
“Almost all of the really big trouble
that you’re going to experience in the
next year is in your portfolio right now;
if you could reduce some of these really
big problems, you might come out the
winner in the Loser’s Game.”
- Charles D. Ellis
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47
G. Money Management
C-A-N-S-L-I-M
C = Current EPS growth – should be a
minimum of 20%
A = Annual EPS growth – should be at
least
15-20% for 3 years
N = New. The greatest winners had a major
new product, new management, or new
industry conditions
A new high in price can alert you to new
This lecture series is
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fundamental developments
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48
G. Money Management
C-A-N-S-L-I-M
S = Shares outstanding – past winners
have had an average of less than 25 million
L = Leadership – demonstrated by high relative
strength for the stock and the stock’s industry
group
I = Institutional sponsorship – good stocks are
owned by institutions
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M = Market – even good stocks go down in a
bear market
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2. Sentiment
(Behavioral Finance Analysis)
“The Little Guy is
Not Always Wrong”
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50
A. Transactional Indicators
ISE 10-Day Put/Call Ratio
Ratio
Index
S&P 500
10-Day Ratio
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51
A. Transactional Indicators
Options Clearing Corp. (OCC) Index Options
Premium Put/Call Ratio
S&P 500
4-Wk. Moving Average
Index
Bullish
Bearish
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52
B. Sentiment Polls
Consensus Inc. Bullish Percentage: Equities
S&P 500
Index
Percent
Bearish
Bullish
4-Week Moving Average
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53
C. Valuations
S&P 500 Dividend Yield vs. Price / Earnings Ratio
P/E Ratio 142.30 - October 2009
Dividend Yield
Percent
Ratio
P/E Ratio
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54
3. Supply/Demand
(Quantitative Analysis,
Flow of Funds)
“Investors Make Bottoms and
Traders Make Tops”
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55
A. Investor vs. Trader Participation
Flow of Funds: Net Change in Supply of Stock
S&P 500
Quarterly, SAAR
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56
A. Investor vs. Trader Participation
Flow of Funds: Households
60
60000
1800.00
Equity Percent
50
1600.00
50000
1400.00
40
$Billions
1200.00
40000
1000.00
30
30000
800.00
600.00
20
Total Financial Assets
20000
400.00
200.00
10
10000
S&P 500
0.00
2
0
01/8
/
4
84
1/
/
4
86
1/
/
4
88
1/
/
4
90
1/
/
4
92
1/
/
4
94
1/
/
4
96
1/
/
4
98
1/
/
4
00
1/
/
4
02
1/
/
4
04
1/
/
4
06
1/
/
4
08
1/
/
4
10
1/
/
4
12
1/
/
4
This lecture series is
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57
A. Investor vs. Trader Participation
Flow of Funds: State & Local Government Employee
Retirement Funds
1800.00
Equity Percent
1600.00
1400.00
1200.00
1000.00
800.00
600.00
S&P 500
400.00
Total Financial Assets
200.00
0.00
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82
1/
/
4
84
1/
/
4
86
1/
/
4
88
1/
/
4
90
1/
/
4
92
1/
/
4
94
1/
/
4
96
1/
/
4
98
1/
/
4
00
1/
/
4
02
1/
/
4
04
1/
/
4
06
1/
/
4
08
1/
/
4
10
1/
/
4
12
1/
/
4
MTA Educational Foundation Half-Day College Level Presentation – INTRODUCTION TO TECHNICAL ANALYSIS ©2010
58
A. Investor vs. Trader Participation
New Equity Financing
60
300
Monthly
50
12-Month Total
250
40
$Billions
$Billions
200
30
150
20
10
0
100
50
This lecture series is
produced by the Market
Technicians Association
Educational Foundation
based on the detailed
class notes of
Charles Kirkpatrick II, CMT
Copyright © 2010.
All rights are reserved.
MTA Educational Foundation Half-Day College Level Presentation – INTRODUCTION TO TECHNICAL ANALYSIS ©2010
59
A. Investor vs. Trader Participation
Margin Debt versus % of Market Value
$Billions
Prior to January 1997,
NYSE figures only
Margin Debt
% of Market
Value
This lecture series is
produced by the Market
Technicians Association
Educational Foundation
based on the detailed
class notes of
Charles Kirkpatrick II, CMT
Copyright © 2010.
All rights are reserved.
MTA Educational Foundation Half-Day College Level Presentation – INTRODUCTION TO TECHNICAL ANALYSIS ©2010
60
A. Investor vs. Trader Participation
Insider Activity
S&P 500
Index
Bearish
8-Week Moving Average
Bullish
This lecture series is
produced by the Market
Technicians Association
Educational Foundation
based on the detailed
class notes of
Charles Kirkpatrick II, CMT
Copyright © 2010.
All rights are reserved.
MTA Educational Foundation Half-Day College Level Presentation – INTRODUCTION TO TECHNICAL ANALYSIS ©2010
61
B. Cash & Cash Flows
Equity Mutual Funds: Cash Percentage of Net Assets
Cash Percentage
(Monthly)
This lecture series is
produced by the Market
Technicians Association
Educational Foundation
based on the detailed
class notes of
Charles Kirkpatrick II, CMT
Copyright © 2010.
All rights are reserved.
MTA Educational Foundation Half-Day College Level Presentation – INTRODUCTION TO TECHNICAL ANALYSIS ©2010
Index
Percent
S&P 500
62
B. Cash & Cash Flows
Net Sales of Equity Mutual Funds (Including Reinvested Dividends)
60
S&P 500
40
Index
$Billions
20
0
-20
-40
Net Sales
(Monthly)
-60
This lecture series is
produced by the Market
Technicians Association
Educational Foundation
based on the detailed
class notes of
Charles Kirkpatrick II, CMT
Copyright © 2010.
All rights are reserved.
MTA Educational Foundation Half-Day College Level Presentation – INTRODUCTION TO TECHNICAL ANALYSIS ©2010
63
C. International Flows
Net Purchases of U.S. Equities by Foreign Investors minus
Net Purchases of Foreign Equities by U.S. Investors
Index
$Billions
S&P 500
Quarterly
net flows
This lecture series is
produced by the Market
Technicians Association
Educational Foundation
based on the detailed
class notes of
Charles Kirkpatrick II, CMT
Copyright © 2010.
All rights are reserved.
MTA Educational Foundation Half-Day College Level Presentation – INTRODUCTION TO TECHNICAL ANALYSIS ©2010
64
4. Intermarket
(Economic Analysis)
“Bonds Don’t Lead;
Stocks Lead”
This lecture series is
produced by the Market
Technicians Association
Educational Foundation
based on the detailed
class notes of
Charles Kirkpatrick II, CMT
Copyright © 2010.
All rights are reserved.
MTA Educational Foundation Half-Day College Level Presentation – INTRODUCTION TO TECHNICAL ANALYSIS ©2010
65
A. Stocks vs. Commodities vs. Interest Rates
The Stock Cycle versus The Bond Cycle
This lecture series is
produced by the Market
Technicians Association
Educational Foundation
based on the detailed
class notes of
Charles Kirkpatrick II, CMT
Copyright © 2010.
All rights are reserved.
Stocks lead interest rates.
Interest rates = the inverse of bond prices.
MTA Educational Foundation Half-Day College Level Presentation – INTRODUCTION TO TECHNICAL ANALYSIS ©2010
66
A. Stocks vs. Commodities vs. Interest Rates
Bonds and Stocks Move in the Same Direction Some Times
and in the Opposite Direction Other Times
S&P 500
30-Year Treasuries
This lecture series is
produced by the Market
Technicians Association
Educational Foundation
based on the detailed
class notes of
Charles Kirkpatrick II, CMT
Copyright © 2010.
All rights are reserved.
StockCharts.com
MTA Educational Foundation Half-Day College Level Presentation – INTRODUCTION TO TECHNICAL ANALYSIS ©2010
67
A. Stocks vs. Commodities vs. Interest Rates
Treasury Bonds and the CRB Index
30-Year Treasuries
CRB Index
StockCharts.com
This lecture series is
produced by the Market
Technicians Association
Educational Foundation
based on the detailed
class notes of
Charles Kirkpatrick II, CMT
Copyright © 2010.
All rights are reserved.
MTA Educational Foundation Half-Day College Level Presentation – INTRODUCTION TO TECHNICAL ANALYSIS ©2010
68
B. Stocks, Commodities, and Interest Rates vs. The Economic Cycle
Hypothetical Business Cycle Showing Peaks & Troughs
S
G
B
Expansion
Recession
G
B
B = Bonds
S
S = Stocks
G = Gold*
This lecture series is
produced by the Market
Technicians Association
Educational Foundation
based on the detailed
class notes of
Charles Kirkpatrick II, CMT
Copyright © 2010.
All rights are reserved.
*Gold - used as a proxy for all commodities
Source: “Technical Analysis Explained,” Martin Pring
MTA Educational Foundation Half-Day College Level Presentation – INTRODUCTION TO TECHNICAL ANALYSIS ©2010
69
B. Stocks, Commodities, and Interest Rates vs. The Economic Cycle
Interaction of Financial Markets During a
Typical Business Cycle
Business cycle peak
Bond Market
Stock Market
Gold*
*Gold - used as a proxy for all commodities
Business cycle trough
Source: “Technical Analysis Explained,” Martin Pring
This lecture series is
produced by the Market
Technicians Association
Educational Foundation
based on the detailed
class notes of
Charles Kirkpatrick II, CMT
Copyright © 2010.
All rights are reserved.
MTA Educational Foundation Half-Day College Level Presentation – INTRODUCTION TO TECHNICAL ANALYSIS ©2010