I’m currently reading Murphy’s textbook on Technical Analysis of the Financial Markets. If I were a day trader, I would really enjoy the SPY setup we had today. Although I’m still learning, it looks as if the SPY today showed signs of textbook H&S trend reversals. If only I were a day trader… well maybe not. I see how hard Bubs has it. I couldn’t stomach that … yet. Tomorrow’s another day!

In our previous analysis, the general consensus from myself and readers is that EMC, upon breaking the neckline of the inverted H&S, may have some bullish tendencies. Now, let’s couple the initial chart reading with some indicators I’ve begun to use thanks to the instructors at Think or Swim. (Shameless plug, but TOS is by far the best broker I’ve used to date!)

Let’s go ahead and add three indicators to our EMC chart, the MACD, the Slow Stochastic, and the Money Flow Index.

Now, you (and I both!) should have a good understanding of how the MACD, SS, and the MF work. Investopedia has great articles on all three so we’ll go ahead and forgo a long explanation of the three. I’ll come back to that at a later date.

First, the MACD indicator. As you can see (and if I’m reading this correctly), the MACD (the solid black line) has crossed over the 9 day EMA, or trigger line (the red dashed line). When the MACD crosses the trigger in a positive way (i.e. the MACD doing the crossover instead of the trigger), this may signal a bullish trade. One indicator, at least in my opinion, probably does not give the whole story so let’s move on the next indicator, the Slow Stochastic.

The Slow Stochastic is made up of two lines, the %K and %D line. To keep things short, when the %K line crosses the %D line in an upward trend, that may signal a buy while crossing on a downward trend can signal a sell. What’s neat about the slow stochastic from the TOS classes is that if the %K line begins to diverge from the %D line, a bullish trend becomes more and more likely since stock prices are closing closer to their intra-day highs. With EMC, the %K line appears to be diverging from the %D line in an upward trend.

The last signal I was taught is the Money Flow Index. The money flow is just that. How much money are large institutions pouring/withdrawing from a specific stock. In this case, it appears that money is slowly flowing back into EMC after the harsh selloff a month or so go. Don’t fight the trend.

From the chart analysis to the different indicators, I see EMC going upward over the next month to two months. Within the next couple of months, from charting, I’d give EMC a price target of about $22.50 which is the difference between the low and the neckline added to the neckline / resistance level. If the trend is confirmed, it may be worth buying options about 3 months out in case you’re interested in jumping in just to give yourself enough time. EMC also has earnings in early January which may give EMC’s stock another pop. Good luck!

As some of you know, I’ve been a fan of EMC both on the ride up, and sadly, on the ride down. So here’s my first attempt at using technical analysis to figure out where, if I were to invest in EMC, my entry and exit points would be.

Here’s a recent graph of EMC with some notes I’ve made:

There are two things to note on the graph. First, I’ve highlighted three points in a gray oval shape. From what I’ve learned so far about TA, it appears that EMC is showing signs of an inverse head and shoulders pattern. The left and right ovals show the shoulders of the graph while the huge dip near 17 would be considered the head.

Now take a look at the horizontal line I’ve drawn near 20. This is considered the neckline if EMC is truly showing signs of an inverse H&S. It’s also a large area of resistance heading back a few months during the VMWare spinoff.

So if I believe that this is an inverse H&S (a bullish pattern), how would I trade it? I’d first make sure the resistance / neckline is broken on good volume as compared to days and weeks past. Volume is important when breaking resistance as it can help show whether or not the resistance level will turn into a support level. if EMC does break through 20, I would pick up a position with the intent of closing the position if EMC were to drop below the 20. This is what’s known as the REE for all you Option Addict readers out there. An REE is short for the Raimo Entry at Exit. In other words, if the trade goes awry, you can exit with minimal loss.

So there you have it. That’s my first solo attempt at TA. Do you agree/disagree with the assessment? Let me know!