In search of numbers that don't lie

Business Times

a day ago

IN a world of fake numbers, there is one set you can believe. Those are the figures of the open, high, low and close (OHLC) for a stock, futures contract or index calculation. They are available at the same time, and with objective certainty for every investor, trader and market observer.
This is an unusual comfort in a world where the US' Bureau of Labor Statistics commissioner is fired because the President Donald Trump thinks the published numbers were wrong.
The OHLC numbers are the ultimate assessment of what is believable, what can be rejected, and what is guessed at in response to tariff policies, political uncertainties and presidential tantrums.
That is not to say that a chart of price action can predict the future – it cannot. The chart helps to establish where the balance of probabilities lie when considering potential future outcomes. Sometimes it is obvious as when prices trend upwards week after week. At other times, it is more of a hint.
Hidden in those patterns of behaviour are the seeds of change. The challenge of good chart analysis is to identify those seeds as early as possible, so profits can be taken, or new trades entered into.
In addition to the objective certainty of the OHLC figures is that they are backed by money. Investors and traders back their opinions with cash, and that makes their views more valuable than talk over a beer or speculation around the coffee machine. Objectivity coupled with cash commitment provides an enhanced insight into what is happening and expectations of the future.
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Traders may take a shorter-term view, but investors literally bet the house on trends developing over years or even decades. These features that make price charts and their analysis relevant.
The key driver in the global environment is the US equity market. Its key competitor is the China market, which the US is determined to hinder and harass. The US market is tracked best through the broad-based S&P 500 index. Many investors are waiting to see warning signs as the market continues to make new highs, despite the growing evidence of stagflation – low growth and increasing inflation.
After reaching the rounding-top chart pattern, the index has rebounded and moved above its previous peak-high, near 6,200. This is a sharp rally rebound with an upside target near 6,700. This target is calculated by projecting the width of the trading band above the new support level near 6,200.
Trade-band analysis helps to set potential objectives for the up move, but this does not show how the target will be achieved. The uptrend line is used as a support feature for the uptrend development.
Traders will be alert for a momentum pause and consolidation around 6,700.
This remains a strong uptrend that seems to defy many unfavourable economic indicators, which is why many observers suggest this is a bubble environment. The index activity suggests a sustainable rally with well-defined support and resistance features.
The S&P 500 suggests that US investors are blithely blind to the inflationary impact of the Liberation Day tariffs and the economic attack on China.
The Shanghai index suggests the US tariffs are more a tickle than a significant threat. The Shanghai index rise confirms that the US market is no longer the sole essential market in the global economy.
The chart shows two sets of averages using a Guppy Multiple Moving Average indicator. The index was hugging the short-term group of averages, but is now testing the lower edge of this group. This suggests that traders are taking profits, but they have not been joined by investors.
The lower group of averages on the chart is the long-term group that indicates the way investors are thinking. The wide separation in this group suggests that its members continue to support the long-term uptrend.
A pullback to 3,520 or 3,465 continues to provide support for an uptrend continuation. A rebound from this area confirms a temporary retreat rather than a change to a sustained downtrend. The long-term upside target for the Shanghai Index is near 3,700. This calculation also uses the trade-band projection method.
The objective numbers of the open, high, low and close for these two indexes suggest unexpected strength in one market, and a temporary retreat in the other. Both markets have risen since Liberation Day. These contradictory conclusions cannot persist simultaneously, so investors are watching them carefully for an indication of change.
The writer is a financial technical analysis specialist, equity and derivatives trader and author