>>>> Click Here For More Free Option Trading Videos <<<<<
These blue lines are actually something called “V bottoms,” and you don’t need to know too much about that. The only thing that that’s interesting in, in a very long term scenario, V bottoms have become significant recently, going back to 1999.
There was a significant V-bottom here, where prices ran up dramatically. I’m taking a look at whether a V-bottom is forming here, recently, in the markets. If a V-bottom is starting to form, the way I take a look at V-bottoms is this long-stem candlestick charts here. They have a very long stem at each one of these bars.
These bars come down to form the left side of V. Long stems form the right side of the V, as it moves up. It’s going to be interesting and significant to see if the market does rally from this point, and a long stem forms here, just like it has in the past.
In this particular V, we had a couple of long stems here, here, and here. Then, there was a long stem on the right side of the V, as well. I’m taking a look at that, to see if a long stem… We already have one long stem, on the right side of the V. I’m keeping an eye on this one; on this particular month now, to determine whether or not another long stem is going to be in place here. This will act as support for the market to move up from this point.
Channels are also a significant technical analysis tool that you can use. I showed you support and resistance points. Now I will show you how I draw channels.
I like to take a look at channels, especially long-term channels. The way I do that is I simply go into my drawing tools. I highlight “Channel” here. The way I place my channels is basically by taking a look at these high points, and seeing where they line up with any low points previously to that.
I come down here. I start to draw one channel. All I try to do is connect the dots. Then, what happens is that this channel tool begins to pop out. I can start to draw a channel tool here, on the bottom of this. You really have to eye it. Where do you want your channel to start? Where do you want it to end? What do you want it to include? What don’t you want to include?
You could make an argument for placing the channel here. There is a little bar here touching this channel. I want as many touch points here on this lower channel line, and on the upper channel line.
There was a support level here that I liked. There was a little bit of a support here. There was resistance here, and up in here, on this upper trend line channel. I like to see as many points as possible touch this up-trend channel line, this top channel line.
When I form these channels, I also like to see as many points that touch it at the bottom as well. Here is one point, and here is another point. There’s another point here. There’s a couple of points in here. So far, prices have not broken through this particular uptrend channel line, or this lower trend channel line.
I’ll be keeping a very close eye on that as well. That is additional evidence that not only is the uptrend still intact, but we may also be forming a V-bottom here, in the prices of the Dow Jones Industrial Average.
If that is the case, and prices do not significantly drop through this lower trend channel line, or drop below this V that is being formed on this V-bottom… If prices were to drop below this V, and they were to drop below this lower-trend channel line, I would suggest that we’re probably going to be in a very long bear market. Or at least a trading market, in between this 11,500, and 12,750, or even higher level, for a long time.
These two are basically the support and resistance points, and a channel. This upper trend channel line is the upper trend channel line, and this is 25% of this. You can set that up when you do your channels. I can show you that if you highlight this, if you want to, you can show the 75% line – which is this upper line – and you can show the 25% line, which is this lower middle line.
You can also show the 50% median line, which goes right through the center of it. Sometimes that is significant, as well. Generally, what will happen is that prices move down to touch this lower trend line. They will pause at the 50% line, which they did here, before hitting the 75% line, and hitting this top line here.
That’s exactly what happens. I like using channels, because it gives me a better picture of the trend of the market, or a particular stock. I also like support and resistance points. I have given you just about everything I use in technical analysis.
These V-bottoms are not really that necessary. If you just learn the support and resistance points, and the trend and the channels, that is all you’re going to need for entering the monthly trades, as well as the trades that we are going to talk about in Module 11.
Then, when you add to that, the price and volume analysis that I talked about earlier… For example, one of the reasons I like Starbucks at this level, was because of these large price bars here. If you take a look at the amount of volume coming into this stock, at these levels – at the 23 level, there were 137 million shares traded on that one day.