Technical Indicators

Technical Indicators

Why bother with technical indicators?   Because they can relay real information about behavior of market participants.  After all, these are the buyers you will one day rely on to buy your positions from you.  Pay attention to voodoo too if everyone else does.

Peter Lynch indicator.  Divergence of operating profits vs. stock price can identify pricing discrepancies over near- and long-term.

Trend lines.  Pay attention when, for instance, Nasdaq trend diverges significantly from S&P 500 trend line.  Over time, they gravitate back toward one another. 

Relative Strength Index.  RSI is valuable for timing entry points.

Price vs. volume can help identify the bottom to a long-term decline in a stock price and the overall market.  Look for a big jump in the stock price on heavy trading volume as a time to get into a stock that has been in secular decline. 

Short Interest.  Short interest is the percentage of shares of a company that have been borrowed and sold by the shorts.  Be careful of a heavily shorted stock.  Shorts are not dumb. In contrast, when the overall market is heavily shorted, it may be a buy signal.  A great buying opportunity for an individual stock is often when shorts get it right and exit their positions at the bottom. 

Moving averages (200-day, 100-day, 50-day) help identify trends and divergences from trend.  Helps identify entry points.

Candlestick analysis is often helpful in identifying turning points in a share price.

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