Tea Leaves, Voodoo & Other Dark Forces (2)

A few posts ago I displayed a tragic example of machines gone wild or squiggly line madness so common to-day. The chart was a study of Teck Resources using candlesticks accompanied by an RSI, Bollinger Bands, three moving averages, a MACD and a slow stochastic. At least 11 squiggly lines to ponder. The chart was a daily plot up to the close at $35.64 May 14, 2010.

The squiggly line signals were mixed with the RSI trying to generate a bullish positive divergence signal, the plot was into support at the lower Bollinger Band and we seemed to be into support at the 200 day MA. The MACD was into over-sold territory and the Slow Stochastic was also trying t turn up and about to generate a bullish positive divergence buy signal.

Let us now look at a pure daily chart of Teck Resources at the close of May 20, 2010. Keep in mind the daily is very short term and for traders only. Investors should use weekly and monthly charts. In this case we are only using a daily bar chart with volume. Note the break to new highs in April that was false because the new high was not supported by an increase in volume. Note now the subsequent correction – an A-B-C followed by an extension for a total of five waves. Note how the volume has spiked. I am a buyer here for a bounce up to $40. I am stopped out on a close under $30