market folly

Circling through some of my favorite blogs, I found some charts worth posting up here in what I like to call the 'Technical Analysis Round-up.' Longer term readers will know I like to reference charts simply because its a great tool to have in your investing arsenal. While I like to make investment decisions based on fundamentals, the technicals (a.k.a. the tape) can often provide additional insight to aid you in your quest. The fundamentals determine the 'why,' while the technicals determine the 'when' and 'how.' Glancing at a few charts can more often than not give you a great view of the price action surrounding some macro occurrences. Paying attention to volume, divergences, price patterns, and especially trend lines can provide you with great risk/reward setups. I'm not here to start a debate on fundamentals versus technicals because those arguments go in circles. I simply use both tools because they both offer unique information. If you're looking for reasons as to why you should pay attention to both the fundamentals and the technicals, then I will simply point you to interviews with some well known hedge fund managers that I've posted here and here.

Now, on to the Technical Analysis Roundup. First, over on Stewie's blog, he has a chart up of the Oil Services Index that shows a test of a long term trendline. This trendline can serve as a great entry into an easy risk/reward play. Buy the dips in oil service names as it approaches the trendline. Place your stop just below the trendline in case it is broken to the downside. Very simple risk/reward play that takes emotion out of the game. Oil will probably need to see some strength for the oil service names to take off here.

(click to enlarge)

(click to enlarge)

Lastly, I want to highlight a chart posted over on Kevin's Market Blog. There, Kevin examines a major long-term trendline being violated in the British Pound. The British Pound has declined in value for fundamental reasons. Among them, a stronger U.S. Dollar, and an overall weakening environment in England and Europe in general. This fundamental decline in the currency is illustrated by the latest major drop on the chart. And, at the same time, technicians will tell you that since the trendline is broken, a short position in the Pound might be advisable. And, at the very least, technicians would have exited any long positions in the Pound once that long term trendline was broken.

(click to enlarge)