weekend charting 30 july 2 october, page-36

Kooke, I note you're the only pies supporter in Qld - you'll be the only bloke in Qld then with an ear to ear grin after we smashed the bluebaggers this arvo. Go Pies!

LuckyV, a look at QBE for you since I follow it and had a couple of trades in it after the end of Feb drop I retain an interest (but not a position atm).

Take note, I've decided to try something a little different here cos:

(a) I've been doing some experimentation with long timeframe stochastics after an interesting post from brisvegas on the forex forum discussed and renewed m interest there, and

(b) I see an interesting discussion in this forum today on the use of MAVs, continuing on from last weekend.

Btw, apologies to bubwell in advance I've returned to clickable thumbnails - sorry mate.

Anyway, given the above, my perspective here today is somewhat experimental, so make of it what you will.

Firstly, a long term (8 year) look at QBE's daily chart, which I use to introduce the behaviour of the long timeframe stochastic. I've chosen a 195,3,3 stochastic and its behaviour I think is quite interesting:



Note that the stochastic ranges fairly consistently above the overbought line throughout the long term bullish period until QBE's peak in 2007. We also see that for dips along the way during that period, there is increasing penetration of the overbought line until eventually it penetrates all the way to the oversold line in December 07. Subsequently, its movement mirrors the major waves quite well, and the current move down is reflected in that last sharp breach of the overbought line and decline all the way to oversold territory.

Having tested this stochastic on a number of stocks, indexes and currencies, these are pretty reproducible characteristics of this particular stoachastic setup.

Which brings me to comment on what that stochastic is doing now - looking like its ranging in oversold territory, which means a possible consistent period of downtrend.

Nevertheless, the stochastic is not the only indicator in town, so we can look at other variables on a closer look of the daily - this time 18 months:



On this chart we can see that price is approaching $15.00, which is the Feb 09 low and the obvious and key line of support, so it will be critical to see how price reacts to this level.

It will also be telling I think to observe how price behaves as it approaches $15, particularly by looking at the EMAs. I use 4: the 8, 41, 100 & 195, and I always look at how these react to each other. Note currently they are still all diverging, which suggests that there is still downside momentum.

I've added another version of this same chart (i.e. 18 month daily), this time without the price bars on it to focus more clearly on how the EMAs are interacting:



The most telling factor for me is how the EMA8 is interacting with the EMA41. If you look at enough of them you will see the behaviour shown very regularly (on a trending price, in a ranging price it will be quite different) - a cross followed by some divergence, one/some attempts to re-cross in the other direction, one/some convergences which are too weak to even contact or attempt to cross, and eventually you will see the EMA8 build enough momentum to contact again and then ultimately cross the 41. After crossing the 41 it can similarly interact with the next EMA (in this case the 100), and so on.

Note on this final chart then that the EMA8 hasnt even come close to the 41 since mid-May, apart from a couple of weak convergent moves, before again diverging.

Based on the strength of the downtrend as interpreted from the EMA interactions, and the ranging behaviour of this particular stochastic in its oversold territory, I would say that it is inevitable that QBE will approach and test the $15 support level. I think the indicators I've discussed here will give some good clues about what it does when it gets there.

Anyway, hope thats interesting and not too waffly. Certainly this particular stochastic is experimental (for me) but I think gives some good clues, but the behaviour and interaction of the EMAs to each other, and in conjunction with price against the trendline and support, will provide a good indication of where it will start to turn.

Cheers, Sharks.