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I thought this was an interesting article. I would be remise for not
including a link to the copyright holder… so here it is www.futuresmag.com.
I am not associated with futures mag, just thought it was a sobering
article.
By Jim Wyckoff
FWN Staff Writer
"My work has gotten better due to simplifying my approach," John J. Murphy,
the veteran technical analyst, author and CNBC resident technical analyst,
told a group of equites and futures traders attending the Technical Analysis
Group (TAG) XVIII trading conference sponsored by Dow Jones Telerate in New
Orleans.
Murphy said he relies heavily on five or six "useful" technical indicators,
including relative strength indicators, trendlines, moving averages,
Bollinger bands, classic chart patterns such as triangles and double tops,
and Fibonacci retracement levels.
"You must trade a combination of technical signals, not just one" indicator,
said Murphy. He said that many times he'll set up a "good" column and a
"bad" column regarding technical studies. If the "good" column has the
overwhelming evidence supporting a selected trade, Murphy will enter the
trade. But if the evidence supporting a trade is not strong enough, he'll
bypass the trade.
Murphy correctly called the topping of the U.S. semiconductor stock index
(SOX) during mid-summer. His reasoning was plain and simple: the SOX uptrend
line was broken, followed by a double-top formation. "The first sign of a
top is breaking of an uptrend line," he said.
On moving averages for individual stocks, Murphy likes to use the 50-, 100-,
and 200-day moving averages. If the 200-day moving average on an individual
stock is broken on the downside, "big trouble" is in store for that stock.
Also for stock sectors, he said if a 50-day moving average breaks down,
"that sector is in trouble."
Charting a stock market sector divided by the S&P 500 is a favorite method
the veteran technician uses to determine if a given sector is
underperforming the broad market. (Examples: SOX index divided by S&P 500
index, or NASDAQ index divided by the S&P 500 index.)
Another good technical indicator is the Moving Average Convergence
Divergence (MACD), said Murphy. The MACD uses exponential moving averages,
as opposed to the simple moving averages used with an oscillator. Gerald
Appel is credited with developing the study.
Longer-term technical signals are more powerful than shoter-term signals,
said Murphy. "Longer-term charts give you the value of perspective," he
said.
Many traders consider Murphy's book, "Technical Analysis of the Futures
Markets" to be the bible of technical analysis. Along with his daily
broadcasts on CNBC, Murphy heads his own consulting firm, JJM Technical
Advisors, based in Oradell, N.J.
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