Technical Analysis
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  • 1. Zurich/Switzerland Global Technical Research and Behavioral FinanceTechnical Analysis - ExplainedPrivate Banking Patterns (Elliott waves) Momentum (Rates-of-change) Trend (Moving averages) Greed Euphoria Denial Conviction Pessimism Confidence Fear Optimism Despondency Hope Relief Panic CautionImportant disclosures are found in the Disclosure appendixCredit S uisse does and seeks to do business with companies covered in its research reports. As a result, investors should beaware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider thisreport as only a single factor in making their investment decision. For a discussion of the risks of investing in the securitiesmentioned in this report, please refer to the following Internet link:
  • 2. Technical Analysis - Explained Contents What is technical analysis? . . . . . . . . . . . . . . . . . . . . . . . . . 3 Technical analysis pre-empts fundamental data . . . . . . . 4 Mood governs ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Optimism, pessimism, greed and fear . . . . . . . . . . . . . . . 6 Chart types and chart construction . . . . . . . . . . . . . . . . . . 7 Support and resistance . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Trendlines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 9 Investment horizons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 What trend? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Moving averages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 The simple moving average . . . . . . . . . . . . . . . . . . . . . . 13 Long-, medium- and short-term averages . . . . . . . . . . . 14 Moving average crossover . . . . . . . . . . . . . . . . . . . . . . . . 15 Momentum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Momentum, indicator signals . . . . . . . . . . . . . . . . . . . . . 17 Long-, medium- and short-term indicators . . . . . . . . . . . 18 9500 Trend and momentum combination . . . . . . . . . . . . . . . . 19 Reversal and redistribution . . . . . . . . . .9000 . . . . . . . . . . . 20 ... Equity analysis . . . . . . . . . . . . . . . . . . . 8500. . . . . . . . . . . 21 ... Cycle phase distribution . . . . . . . . . . . . . . . . . . . . . . . . . 22 The Elliott Wave Principle . . . . . . . . . . .8000. . . . . . . . . . .. 23 Catalog of impulsive waves . . . . . . . . . . . . . . . . . . . . . . 24 Catalog of corrective patterns . . . . . . .7500 . . . . . . . . . . 25 ... Impulsive wave patterns, example. . . . . . . . . . . . . . . . . 26 7000 Corrective wave patterns, example . . . . . . . . . . . . . . . . 27 Head and shoulder reversal pattern . . .6500 . . . . . . . . . . 28 ... Fascinating Fibonacci . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Wave correlations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 6000 Fibonacci correlation - more than coincidence . . . . . . 31 Diploma in basic technical analysis . . . . . . . . . . . . . . . 32Global Technical Research -2-
  • 3. Technical Analysis - Explained Price chart 6500 6000 5500 Technical indicators 5000 2000 1500 1000 500 0 -500 -1000 May Jun Jul Aug Sep Oct Nov Dec 2010 Feb Mar AprWhat is technical analysis?Technical analysis is the study of financial market action. The technician looks at price changes thatoccur on a day-to-day or week-to-week basis or over any other constant time period displayed ingraphic form, called charts. Hence the name chart analysis.A chartist analyzes price charts only, while the technical analyst studies technical indicators derivedfrom price changes in addition to the price charts.Technical analysts examine the price action of the financial markets instead of the fundamental fac-tors that (seem to) effect market prices. Technicians believe that even if all relevant information of aparticular market or stock was available, you still could not predict a precise market "response" to thatinformation. There are so many factors interacting at any one time that it is easy for important onesto be ignored in favor of those that are considered as the "flavor of the day."The technical analyst believes that all the relevant market information is reflected (or discounted) inthe price with the exception of shocking news such as natural distasters or acts of God. These fac-tors, however, are discounted very quickly.Watching financial markets, it becomes obvious that there are trends, momentum and patterns thatrepeat over time, not exactly the same way but similar. Charts are self-similar as they show the samefractal structure (a fractal is a tiny pattern; self-similar means the overall pattern is made up of smallerversions of the same pattern) whether in stocks, commodities, currencies, bonds. A chart is a mirrorof the mood of the crowd and not of the fundamental factors. Thus, technical analysis is theanalysis of human mass psychology. Therefore, it is also called behavioral finance.Global Technical Research -3-
  • 4. Technical Analysis - Explained A Economic recession Economic recession Stock market Economic growth B BTechnical analysis pre-empts fundamental dataFundamentalists believe there is a cause and effect between fundamental factors and price changes.This means, if the fundamental news is positive the price should rise, and if the news is negative theprice should fall. However, long-term analyses of price changes in financial markets around the worldshow that such a correlation is present only in the short-term horizon and only to a limited extent. It isnon-existent on a medium- and long-term basis.In fact, the contrary is true. The stock market itself is the best predictor of the future fundamentaltrend. Most often, prices start rising in a new bull trend while the economy is still in recession (positionB on chart shown above), i.e. while there is no cause for such an uptrend. Vice versa, prices startfalling in a new bear trend while the economy is still growing (position A), and not providing fundamen-tal reasons to sell. There is a time-lag of several months by which the fundamental trend follows thestock market trend. Moreover, this is not only true for the stock market and the economy, but also forthe price trends of individual equities and company earnings. Stock prices peak ahead of peak earn-ings while bottoming ahead of peak losses.The purpose of technical analysis is to identify trend changes that precede the fundamentaltrend and do not (yet) make sense if compared to the concurrent fundamental trend.Global Technical Research -4-
  • 5. Technical Analysis - Explained G F R E E A E R DMood governs ratioKnow yourself and knowledge of the stock market will soon follow. Ego and emotions determine farmore of investors´ stock market decisions than most would be willing to admit.For years, we have dealt with professional money managers and committees and found they were asmuch subject to crowd following and other irrational emotional mistakes as any novice investor. Theywere, for the most part, better informed, but facts alone are not enough to make profitable deci- sions. The human element, which en- compasses a range of emotions from fear to greed, plays a much bigger role in the decision-making process than most investors realize. In a practical sense, most investors act exactly opposite to the rational wisdom of buying low and selling high based on very predictable emotional responses to rising or falling prices. Falling prices thatat first appear to be bargains generate fear of loss at much lower prices when opportunities are thegreatest. Rising prices that at first appear to be good opportunities to sell ultimately lead to greed-induced buying at much higher levels. Reason is replaced by emotion and rationalization with suchcyclical regularity, that those who recognize the symptoms and the trend changes on the charts canprofit very well from this knowledge.Investors who manage to act opposite to the mood of the crowd and against their own emotions arebest positioned to earn money in the financial markets. Financial risk and emotional risk correlateinversely.Global Technical Research -5-
  • 6. Technical Analysis - Explained (Optimism, Greed, Euphoria) Conviction Confidence Complacency Price trend Concern Caution Capitulation (Pessimism, Fear, Panic)Optimism, pessimism, greed and fearWhy aren´t more people making more money in the financial markets? Because, as we have seen,people are motivated by greed (optimism) when buying and by fear (pessimism) when selling. Peopleare motivated to buy and sell by changes in emotion from optimism to pessimism and vice versa.They formulate fundamental scenarios based on their emotional state (a rationalization of the emo-tions), which prevents them from realizing that the main drive is emotion.The chart above shows that if investors buy based on confidence or conviction (optimism) they BUYnear or at the TOP. Likewise, if investors act on concern or capitulation (pessimism) they SELL nearor at the BOTTOM. Investors remain under the bullish impression of the recent uptrend beyond theforming price top and during a large part of the bear trend. Vice versa, they remain pessimistic underthe bearish impression from the past downtrend through the market bottom and during a large part ofthe next bull trend. They adjust their bullish fundamental scenarios to bearish AFTER having becomepessimistic under the pressure of the downtrend or AFTER having become optimistic under the pres-sure of the uptrend. Once having turned bearish, investors formulate bearish scenarios, looking formore weakness just when it is about time to buy again. The same occurs in an uptrend when moodshifts from pessimism to optimism. Investors formulate bullish scenarios AFTER having turned bullish,which is after a large part of the bull trend is already over. Emotions are the drawback of fundamentalanalysis. Investors must learn to buy when they are fearful (pessimistic) and sell when they feel eu-phoric (optimstic). This may sound easy (simple contrary opinion), but without Technical Analysis it ishard to achieve.The main purpose of technical analysis is to help investors identify turning points which theycannot see because of individual and group psychological factors.Global Technical Research -6-
  • 7. Technical Analysis - Explained Monthly OHLC Weekly OHLC 10000 8000 9500 9000 7500 bar chart 8500 8000 bar chart 7000 7500 6500 7000 6500 6000 6000 5500 5500 5000 5000 4500 4000 4500 35002002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 A M J A S O N D 2009 A M J J A S O N D 2010 A M J J A Daily OHLC Hourly OHLC 6850 6850 6800 6800 bar chart bar chart 6750 6750 6700 6700 6650 6650 6600 6600 6550 6550 6500 6500 6450 6400 6450 6350 6400 6300 6350 6250 6300 6200 6250 6150 6200 6100 8 15 22 1 November December 2010 February March April February MarchBar charts the end of the period. For example, on the monthly chart, a bar indicates the high and theFour bar charts of the Swiss Market Index are low at which the SMI traded during that singleshown above. They are the most widely used month.chart types.The bar charts are: High-low charts or Line charts High-low-close charts or Sometimes we use line charts, especially for Open-high-low-close charts Elliott wave analysis. A line chart is the simplest ofOne single bar shows the high and the low of the all methods. It is constructed by joining togetherrespective trading period. A vertical bar is used to the closing price of each period, for example dailyconnect the high and the low. Horizontal lines are closings for the daily line chart, weekly closingsused to show the opening price (left) of that spe- for the weekly chart or monthly closings for thecific trading period and the closing price (right) at monthy line chart. Daily closing line chart High High 6500 Open 6000 Close 5500 Low Low May Jun Jul Aug Sep Oct Nov Dec 2010Global Technical Research -7-
  • 8. Technical Analysis - Explained Break of resistance Last peak becomes resistance 35 Last peak becomes Breakout resistance above 30 30 resistance Last peak becomes level resistance 25 Resistance becomes support 19 20 Support becomes resistance 15Last lowbecomes support 10 Last low becomes support Last low 5 Break of support becomes support 1996 1997 1998Support and resistanceResistance lines are horizontal lines that start at a recent extreme price peak with the line pointinghorizontally into the future. Support lines are horizontal lines that start at a recent extreme of a cor-rection low and also point toward the future on the time axis. An uptrend continues as long as themost recent peak is surpassed and new peak levels are reached. A downtrend continues as long aspast lows are broken, sustaining a series of lower lows and lower highs. Notice that the previoussupport often becomes resistance and resistance becomes support. A resistance or a support linebecomes more important and breaks above or below these lines gain more credibility as the numberof price extremes (peaks for resistance; or lows for support) that can be connected by a single lineincreases.Some examples for Microsoft are shown on the chart above. Microsoft reached a high of 19 in July1997. The price started to correct from there and Microsoft remained below this level until February1998. The 19 level became the resistance, meaning that only if 19 (the highest peak so far in theuptrend) had been broken on the upside would the stock have confirmed its uptrend. The same istrue for the peak at 30 in July 1998. The uptrend was confirmed when the price rose above thisresistance in November 1998.Support levels are positioned for example at 11, 15, 20.5 or 22. As long as the price pushes abovepast peaks (resistance levels) and holds above past support levels (does not break them) the uptrendremains intact. The same is true for the bear trend. The downtrend remains intact as long as the pricefalls below the recent lows (support levels) and fails to rise above past resistance levels.A bearish trend reversal occurs when the price breaks through the most recent support afterfailing to rise above the most recent resistance. A bullish trend reversal occurs when the pricepenetrates the most recent resistance after holding above the most recent support.Global Technical Research -8-
  • 9. Technical Analysis - Explained 21 20 19 Trendline is 18 broken 17 16 15 14 13 12 Trendline is broken 11 10 9 8 J J A S O N D 1997 M ATrendlinesResistance levels can either be drawn by horizontal lines (as discussed on the previous page) or canbe uptrending or downtrending lines.The trendline is nothing more than a straight line drawn between at least three points. In an upmovethe low points are connected to form an uptrend line. For a downtrend the peaks are connected. Theimportant point is that it should not be drawn over the price action. Trendlines must encorporate all ofthe price data, i.e. connect the highs in a downtrend and the lows in an uptrend.The trendline becomes more important and gains credibility as the number of price extremes that canbe connected by a single line increases. The validity and viability of a line that connects only two priceextremes (for example the starting point and one price low) is questionable.The trend is broken when the price falls below the uptrend line or rises above the downtrend line.Some analysts use a 2-day rule, meaning that the trend is only seen as broken if the price closesabove/below the trendline for at least two days. Others use a 1% stop (could be higher depending onmarket volatility), meaning the trend is only seen as broken if the price closes over 1% above/belowthe trendline.The chart above shows Intel´s rise from July 1996 to March 1997. Based on the uptrend line, inves-tors would have held onto the position from around 38/40 until 66 or even 74/76. Most often inves-tors take profits much too early. Stay with a trend until it breaks, avoiding the urge to sell toosoon because the profit could be higher than you originally thought.Global Technical Research -9-
  • 10. Technical Analysis - Explained HOURS Long-term trend 12 (lasts about 11 1 12 months) 10 2 9 3 SECONDS 8 4 MINUTES Short-term trend Intermediate-term (lasts about 7 6 5 trend 2-6 weeks) (lasts about 3-6 months)Investment horizonsThe charts on the previous pages show that investors require perspective. It is imperative to differen-tiate between a short-term, a medium-term and a long-term trend. If somebody tells you to buy theUS dollar because it is likely to rise, make sure you understand whether the dollar is expected to riseover a few days or a few months and if you should buy the dollar with the intention to hold it for severaldays, several weeks or several months.For a technician on the trading floor, the long-term horizon is entirely different from that of an institu-tional investor. For a trader, long-term can mean several days, while for the investor, it can mean 12 to18 months.We can compare the charts and indicators to a clock (shown above). Short-term trends (the seconds)are best analyzed on daily bar charts. Medium-term trends (the minutes) are best seen on weekly barcharts and long-term trends (the hours) are best seen on monthly bar charts. Some investors onlywant to know the hour, some want to know the seconds and some want to know the exact time.The best investment results are achieved when all three trends on the daily, weekly and monthlycharts point in the same direction.Global Technical Research - 10 -
  • 11. Technical Analysis - Explained 1.55 Long-term trends 1.50 1) 1.45 Medium-term trends 1.40 1.35 1.30 2) 1.25 3) 1.20 1.15 Short-term trends 1.10 1994 1995 1996 1997 1998What trend? The chart above shows three US dollar/Swiss franc trends. 1) The uptrend from 1995 to 1997 is long term. It is also called the PRIMARY trend (the Hours). It was broken by the 1998 decline. The long-term uptrend is not a straight line, but is interrupted by corrections of a smaller degree. 2) These corrections are the medium-term or intermediate-term trends (the Minutes). They are also called SECONDARY trends. The medium- term correction is also not a straight line, but is made up of smaller corrections. Uptrend: Downtrend: 3) These smaller trends are the short-term Higher peaks and Lower peaks and trends. They are also called MINOR trends (the higher troughs lower troughs Seconds). A minor downtrend can be part of an intermedi- Sideways trend or consolidation: ate-term uptrend, which itself can be part of a Horizontal peaks and troughs longer-term primary downtrend. Sometimes it is difficult to differentiate between a short- and a medium-term or a long-term trend. Technical analysis helps you to differentiate be- tween the various trends in all financial mar- kets and instruments.Global Technical Research - 11 -
  • 12. Technical Analysis - Explained Day Close 5-day Total 5-day Average Day Close 5-day Total 5-day Average 1 50 x x 21 48 171 34.2 2 55 x x 22 40 186 37.2 3 57 x x 23 43 199 39.8 4 60 x x 24 41 205 41 5 65 287 57.4 25 35 207 41.4 6 70 307 61.4 26 39 198 39.6 7 66 318 63.6 27 35 193 38.6 8 60 321 64.2 28 37 187 37.4 9 50 311 62.2 29 25 171 34.2 10 54 300 60 30 18 154 30.8 11 45 275 55 31 35 150 30 12 43 252 50.4 32 50 165 33 13 33 225 45 33 40 168 33.6 14 40 215 43 34 45 188 37.6 15 35 196 39.2 35 50 220 44 16 30 181 36.2 36 70 255 51 17 25 163 32.6 37 70 275 55 18 30 160 32 38 60 295 59 19 35 155 31 39 75 325 65 20 33 153 30.6 40 70 345 69Moving averagesMoving averages are popular and versatile for Price and 5-day moving average Price & 5-day moving averageidentifing price trends. They smooth out fluctua- Pricetions in market prices, thereby making it easier to 80determine underlying trends. 70Their other function is to signal significant changes 5-day-moving averagein direction as early as possible. 60 50The simple moving average is the most widelyused. Its calculation is shown above in mathemati- 40cal form and displayed in the chart on the right. 30 PriceFor a 5-day moving average, you simply add theclosing prices of the last five closings and divide 20this sum by 5. You add each new closing and skip 10the oldest. Thus, the sum of closings always re-mains constant at 5 days. 0 1 4 7 10 13 16 19 22 25 28 31 34 37 40 Time - DaysWhether you choose a 10-day average or a 40-week average, the calculation is the same; insteadof adding five days, you add 10 days or 40 weeks and divide the sum by 10 or 40, respectively.In most of our research, we use the moving average length out of the Fibonacci series (see page 29).To analyse the short-term trend, we use the 13-day and 21-day averages. For the medium-termtrend, we use the 34-day and 55-day averages. For the long-term trend, we use the 89-day and 144-day averages. Moreover, we also analyze very long-term trends, the so-called secular trends with the233-day, 377-day, 610-day and 987-day moving averages.Global Technical Research - 12 -
  • 13. Technical Analysis - Explained 9500 9000 8500 5-day moving average 8000 21-day moving average 750027 3 10 17 24 31 8 14 21 28 5 12 19 26 2 9 16 23 30 7 14 21 28 4 11 August September October November December 1999The simple moving average (SMA)The simple moving average yields the mean of a data set for a given period. For example: a21- day simple moving average (SMA) would include the last 21 days of data divided by 21,resulting in an average (see chart above for the Dow Industrial Index). This can be calculated atany given time using the last 21 days; hence, the average moves forward with each tradingday. The moving average is usually plotted on the same chart as price movements, so a changein direction of trend can be indicated by the penetration/crossover of the SMA. Generally abuy signal is generated when a price breaks above the moving average and a sell signal isgenerated by a price break below the moving average. It is added confirmation when themoving average line turns in the direction of the price trend.The moving average naturally lags behind price movement, and the extent by which it lags (orits sensitivity) is a function of the time span. Generally, the shorter the moving average, themore sensitive it is. A 5-day moving average will react more quickly to a change in price thanthe 21-day moving average, for example. However, the 5-day moving average is more likelyto give false signals and "whipsaw" than the 21-day one, which gives signals later and suffersfrom opportunity loss.Generally, if the market is trending (in an uptrend or downtrend), a longer time period would beused. If it is ranging (consolidating), the shorter time frame will catch the minor moves moreeasily. Moving averages can act as support and resistance (as shown by the arrows on thechart above for the Dow Jones Industrial Index), similar to the support and resistance dis-cussed on pages 8 and 9.Global Technical Research - 13 -
  • 14. Technical Analysis - Explained Swiss Market Index Swiss Market Index Monthly chart 9500 Weekly chart 6500 The 13-month and 21-month 9000 The 13-week and 21-week moving averages show the moving averages show the long-term trend 8500 medium-term trend 6000 8000 7500 5500 7000 5000 6500 6000 4500 5500 5000 4000 4500 3500 40001999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2002 2003 2004 Long-term, medium-term and Swiss Market Index 5600 short-term averages Daily chart 5500 We incorporate two basic moving averages to 5400 track the three investment horizons as discussed 5300 on page 10. They are shown on the three charts 5200 on this page. 5100 5000 On the monthly chart above, the 13-month and 4900 21-month moving averages track the long-term trend. 4800 On the weekly chart above, the 13-week and 21- 4700 week moving averages track the medium-term 4600 trend. 4500 On the daily chart to the right, the 13-day and 21- The 13-day and 21-day moving averages show the 4400 day moving averages track the short-term trend. short-term trend 4300 The direction of the moving averages indicates 4200 the direction of the three basic trends in force. February April May June July Instead of showing the moving averages on three separate charts to illustrate the three basic trends, we more often display all moving averages on a single daily chart. This is shown on the next page. The long-term moving average is not shown on the monthly chart, but on the daily chart. The medium-term moving average is also shown on the daily chart instead of the weekly chart. Global Technical Research - 14 -
  • 15. Technical Analysis - Explained S1 1.54 21-day moving average S2 S3 1.52 The best performance is S1 S2 1.50 achieved when the short- 1.48term average is rising above 1.46 the medium-term averageand both are rising above the 1.44 long-term moving average. 1.42 B1 B2 1.40 1.38 1.36 1.34 1.32 55-day moving average 1.30 1.28 1.26 144-day moving average 1.24 1.22 B3 1.20 B1 1.18 B2 1.16 Sep Oct Nov Dec 1997 Feb Mar Apr May Jun Jul Aug Sep Oct NovMoving average crossoverThe short-term, medium-term and long-term moving averages are all shown here on the daily chart.The 21-day moving average is shown here for the short-term trend, the 55-day moving average forthe medium-term trend and the 144-day moving average for the long-term trend. Displaying thethree moving averages on one single chart provides important signals based on the moving averagetrends and crossovers.BUY and SELL signals are given - when the price crosses the moving average - when the moving average itself changes directionand - when the moving averages cross each otherA short-term (trading) buy signal (B1) is given when the price rises above the 21-day moving average.The buy signal is confirmed when the 21-day average itself starts rising. A short-term (trading) sellsignal (S1) is given in the opposite direction.A medium-term (tactical) buy signal (B2) is given when the price breaks above the 55-day movingaverage. It is confirmed when the 21-day average crosses above the 55-day average and the 55-dayaverage itself starts rising. A medium-term (tactical) sell signal (S2) is given in the opposite direction.A long-term (strategic) buy signal (B3) is given when the price rises above the 144-day moving aver-age. It is confirmed when the 55-day average crosses above the 144-day moving average and the144-day average itself starts rising. A long-term (strategic) sell signal (S3) is given in the oppositedirection.Global Technical Research - 15 -
  • 16. Technical Analysis - Explained Day C lo s e D iffe re n c e fro m Day C lo s e D if f e re n c e f ro m 5 d a y s e a r lie r 5 d a y s e a rlie r 1 50 21 48 18 2 55 22 40 15 3 57 23 43 13 4 60 24 41 6 5 65 25 35 2 6 70 20 26 39 -9 7 66 11 27 35 -5 8 60 3 28 37 -6 9 50 -1 0 29 25 -1 6 10 54 -1 1 30 18 -1 7 11 45 -2 5 31 35 -4 12 43 -2 3 32 50 15 13 33 -2 7 33 40 3 14 40 -1 0 34 45 20 15 35 -1 9 35 50 32 16 30 -1 5 36 70 35 17 25 -1 8 37 70 20 18 30 -3 38 60 20 19 35 -5 39 75 30 20 33 -2 40 70 20Momentum Price and 5-day rate of change Price and 5-day difference Momentum PriceIn physics, momentum is measured by the rate 80 80of increase and decrease in the speed of an Price (RIGHT SCALE) 70object. In financial markets it is measured by 60 60the speed of the price trend, i.e. whether a 40trend is accelerating or decelerating, rather than 50the actual price level itself. 20 40While moving averages are lagging indicators, 30giving signals after the price trend has already 0turned, momentum indicators lead the price 20trend. They give signals before the price trend -20 Momentum 5-day rate-of-change 10turns. But once momentum provides a signal it -40 indicator Zero line (LEFT SCALE) 0has to be confirmed by a moving average 1 4 7 10 13 16 19 22 25 28 31 34 37 40crossover. Time - DaysInstead of calculating the moving average of the sum of 5 days (see page 12), here we calculate thedifference over a constant 5-day period for a 5-day rate of change. This is shown on the chart abovetogether with the zero line. If today´s price is higher than five days ago, the indicator is positive, i.e.above the zero line. If the price continues to rise compared to five days earlier, the indicator rises. Ifthe price today is lower than five days ago the indicator is negative, i.e. below the zero line. The rateof change oscillator is rather volatile. Therefore, we have smoothed it out (see blue line) so that itprovides easy-to-read directional change signals as explained on the next page. The moving aver-ages are always displayed on the same chart and with the same scale as the price from which theyare calculated. The momentum indicators are calculated using the price difference rather than addingthe prices (as with the moving averages). This is why the momentum indicators are displayed with adifferent scale than the price scale. On the chart above, it is shown by the scale to the left.Global Technical Research - 16 -
  • 17. Technical Analysis - Explained a+d=top phase 5 4 u+a= 6 bull phase positive values 3 Zero Line 7 0 negative 2 d+t= values bear phase 8 1 1 t+u=bottom phase Time axisMomentum indicator signalsThe principle of momentum applies exactly the same to driving a car as to price movements. Whenprices rise and the momentum indicator also rises, the price uptrend accelerates. When prices riseand the indicator falls, the price uptrend decelerates. When prices fall and the momentum indicatorfalls, the price downtrend accelerates. When prices fall and the indicator rises, the price downtrenddecelerates. Therefore, momentum indicators have to be applied together with the moving aver-ages. The momentum oscillator can be in one of four quadrants:Up quadrant (u): Oscillator below the zero line and rising.Advancing quadrant (a): Oscillator above the zero line and rising.Down quadrant (d): Oscillator above the Zero line and declining.Terminating quadrant (t): Oscillator below the Zero Line and declining.The indicator is shown above in an idealized form (bell curve). The same oscillator applies on monthly,weekly or daily charts to identify the long-, medium- and short-term momentum. It is the length ofthe time axis that differentiates the three time horizons. A real-time example is shown on the nextpage for IBM on the weekly chart.1) The indicator is shifting from the "t"erminating phase to the "u"p is shifting from the "a"dvancing phase to the "d"own phase. Thephase, i.e reversing upwards at an oversold level. Expect a price indicator is reversing downwards at an overbought level. Expect auptrend to start. Buy! 2) The indicator is rising through the "u"p new price downtrend to start. Liquidate longs. Sell short! 6) Thephase towards the zero line, i.e. the indicator is becoming neutral: indicator is declining through the "d"own phase towards the zeroExpect the uptrend to continue. Add to longs! 3) The indicator line. Expect the downtrend to continue. Add to shorts! 7) Thecrosses above the zero line. It is shifting from the "u"p phase to the indicator crosses below the zero line. It is shifting from the "d"own"a"dvancing phase. An uptrend reversal is unlikely. Expect the phase to the "t"erminating phase. Expect the downtrend touptrend to continue: Hold! 4)The oscillator rises through the continue: Hold short! 8) The oscillator falls through the "t"erminating"a"dvancing phase towards the overbought level. Expect the phase to the oversold level. Expect the downtrend to bottom outuptrend to enter the top soon. Get ready to sell! 5) The indicator soon. Get ready to buy! Buy when a reversal from "t" to "u" occurs.Global Technical Research - 17 -
  • 18. Technical Analysis - Explained Swiss Market Index Swiss Market Index monthly chart   weekly chart  9500 9000 6500     8500 8000 6000 7500 5500 7000 6500 5000 6000 5500 4500 5000    4500 4000 4000  3500 3500 Long-term momentum oscillator Medium-term momentum oscillator 4000 3000 1000 2000 500 1000 0 0 -500 -1000 -1000 -2000 Higher lows in the momentum -1500 -3000 means the downtrend is slowing. -20001999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2003 2004 Swiss Market Index Long-term, medium-term and daily chart   5600 short-term indicators 5500 5400 We incorporate three momentum indicators to 5300 5200 track the three investment horizons as discussed 5100 on page 10. The monthly or long-term momen- 5000 tum indicator tracks the long-term trend, roughly 4900 4800 a 10-month rate-of-change). The weekly, me- 4700 dium-term or intermediate-term momentum in- 4600 dicator (roughly a 10-week rate of change) tracks  4500  4400 the medium-term trend while the daily or short- 4300 term momentum indicator (roughly a 10-day rate 4200 Short-term momentum oscillator of change) tracks the short-term trend. 1000 We then combine the momentum indicators with 500 the moving averages to identify the trends in force and to assess the most likely future path of these 0 Lower highs in the momentum trends. means the uptrend is slowing. -500 The highest investment return is achieved when -1000 investors start buying at the momentum bottom February March April May June July and add to positions when the price confirms the momentum indicator´s uptrend and rises above the moving average. Likewise, investors should start selling if the momentum indicator tops out and sell more if the price falls below the moving average. Thus, a combination of the signals given by the momentum oscillators, moving averages, and support and resistance should be applied. Global Technical Research - 18 -
  • 19. Technical Analysis - Explained 55-day (medium-term) 1.55 moving average 21-day (short-term) moving average 1.50 1.45 1.40 1.35 144-day (long-term) 1.30 moving average 1.25 Monthly (long-term) indicator Weekly (medium-term) indicator 1.20 Daily (short-term) indicator 2000 1500 1000 500 Sep Oct Nov Dec 1997 Feb Mar Apr May Jun Jul Aug Sep Oct NovTrend and momentum combinationOn page 15, we pictured the three moving averages on one single chart which was the daily chart. Wedo the same analysis here with the momentum indicators. We show all three momentum indicatorson the daily chart together with the short-term, medium- and long-term moving averages.On the chart above for the US dollar/Swiss franc, the long-term trend was rising from 1996 untilAugust 1997. The US dollar was trading above the rising 144-day average and the long-term momen-tum indicator was rising until it topped in September. The momentum indicator´s top was soon con-firmed by the dollar´s fall below the 144-day average in September and October. The long-term topwas also indicated by the negative divergence (dashed blue line) in the medium-term momentumindicator, which registered a lower high in September compared to its high in March. Thus it did notconfirm the new price high in the US dollar at CHF 1.54 in August.The medium-term trend was bullish from September 1996 until March 1997 when the weekly indica-tor topped and the US dollar fell below the slowing 55-day average. The medium-term top in Marchwas also indicated by the negative divergence of the daily momentum indicator, which did not confirmthe new high in the US dollar in February 1997 at 1.49. The daily indicator registered a top that waslower than the top in January.THE COMBINATION OF THESE SIX INDICATORS reveals the most likely future path of the underlyingmarket in all asset classes. The 21-day average is monitored in combination with the daily (short-term) momentum indicator, the 55-day average with the weekly (medium-term) indicator and the144-day average with the monthly (long-term) momentum indicator.The most positive technical constellation is present when the price is above the short-term average,which in turn is rising above the medium-term average, which in turn is rising above the 144-daymoving average. AT THE SAME TIME, the daily, weekly and monthly momentum indicators are rising.The same is true in the opposite direction for the most negative constellation.Global Technical Research - 19 -
  • 20. Technical Analysis - Explained 55 IBM (weekly chart) 50 45 21-week moving average 40 13-week moving average 35 30 25 Medium-term momentum indicator 20 15 Redistribution OVERBOUGHT SELL 4000 3000 2000 1000 a d a d 0 t u OVERSOLD t u -1000 Re-accumulation1995 1996 1997 BUYReversal and redistributionIBM is shown above together with the medium-term momentum indicator on the weekly chart. Sig-nals are given when the trend reverses an extreme lev-els. The stock is said to be OVERBOUGHT when the Redistribution examplemomentum oscillator reaches an extreme upper level Initial True curveabove the zero line and OVERSOLD when it reaches an sell signal Secondaryextreme lower level below the zero line. The oscillator sell signalacts like a rubber band: the further it stretches, the morethe prices need energy to sustain the trend, i.e. a trend Zero linereversal should be expected the more stretched the mo- a d a dmentum indicator becomes.Sometimes signals leave room for interpretation (tech- Very high-risk t speculative buynical analyis is an art not a science). The indicator does signalnot always cross the zero line before giving a new buy-or sell signal. These signals are called redistribution ex- Momentum indicatoramples (see scheme on the right and chart above) orre-accumulation.Sometimes, the oscillator turns upwards again from a high level This is seen as a high-risk selling opportunity. Most of the time, theabove the zero line instead of bottoming below the zero line. This ensuing declines are short-lived and are, more often than not, fullyis seen as a high-risk buying opportunity. Most of the time the retraced.ensuing price rallies are short-lived and are, more often than not, The pause and delay in the aberrated trend is oftenfully retraced. The same pattern can occur in the opposite direction psychologically quite unnerving for the investor. Therefore, patiencewhen the indicator turns downward again from a low level below becomes a tactical requirement, allowing the major underlyingthe zero line (still oversold) instead of topping above the zero line trend forces to rebase at the adjusted price level.(overbought level).Global Technical Research - 20 -
  • 21. Technical Analysis - Explained IBM (weekly chart) 145 35 140 135 30 130 125 25 120 Halliburton (weekly chart) 115 Medium-term momentum indicator above Zero and rising. Medium-term momentum indicator 1500 above Zero and declining. 3000 2000 1000 1000 500 0 -1000 0 2010 2011 2010 2011 Portfolio analysis Each day we calculate the position of over 1000 stocks on the short-, medium- and long-term momentum model. Four stocks are shown on this page, each displaying the medium-term in- dicator in one of the 4 possible positions. In- vestors should look to buy stocks with a rising momentum indicator while selling the stocks with a falling momentum indicator. 65 85 Entergy 84 (weekly chart) 83 60 82 81 80 55 79 78 77 50 76 Zimmer Holding 75 (weekly chart) 74 45 73 72 71 Medium-term momentum indicator 40 70 below Zero and rising. 2500 Medium-term momentum indicator below 1500 2000 Zero and declining. 1500 1000 1000 500 500 0 0 -500 -500 -1000 2010 2011 2010 2011Global Technical Research - 21 -
  • 22. Technical Analysis - Explained % C Y C L E P H A S E D IS T R IB U T IO N N u m b e r o f F ile s = 1 0 0 % 30 Long I n t e r m e d ia t e S h o rt C y c le C y c le C y c le Up 0 17 50 A d v a n c in g 30 53 13 D e c lin in g 30 23 7 T e r m in a t in g 40 7 30Cycle phase distributionOn the previous page, we pictured 4 stocks and their 53% 23%weekly momentum indicators. If we take 30 stocks in-stead of only 4 and calculate the medium-term indicatorfor each of the 30 stocks, we can calculate the numberof stocks positioned in each cycle quadrant.The example above shows the 30 stocks in the DowJones Industrial Index. For each stock, we calculated the 17%position of the long-term, medium-term and short-termmomentum indicators. On the right, we highlight the dis- 7%tribution of the medium-term indicators from the tableabove. The distribution shows 5 stocks (17%) with a momentum indicator rising Intermediate-term momentum cycle below the zero line (up). 16 stocks (53%) with a momentum indicator rising above the zero line (advancing). 7 stocks (23%) with a momentum indicator falling above the zero line (down). 2 stocks (7%) with a momentum indicator falling below the zero line (terminating).Thus, the entire portfolio of 30 stocks equals 100%. We use percentages so that we can comparedifferent portfolios and markets with different stocks and different asset classes.The same percentage distribution is shown above for the long-term indicators and the short-termindicators. From this data, we can see that, as of this point in time, the 30 stocks were quite advancedin their intermediate-term uptrend (a+d=76%; see page 17 for cycle phases). Moreover, the long-term analysis shows that most stocks were in the bearish phase (d+t=70%). Only the short-termcycle pointed to strength (u+a=63%).We do this type of momentum analysis for over 1000 stocks, 80 stock market indices, 40 commodi-ties, bond-futures and 40 interest rate series. Also, for the US dollar against 40 currencies and thesame for the Japanese yen, euro, Swiss franc and British pound each against 40 currencies. Wesearch for those financial market series that are best positioned in bull phases. The indicators providea clear outlook and objectivity for the broad market trends, allowing you to buy and sell against thebackdrop of subjective emotional stress. You need to build trust in these indicators so that youcan buy against the prevailing pessimism and sell against the prevailing optimism.Global Technical Research - 22 -
  • 23. Technical Analysis - Explained and Waves Waves WavesThe Elliott Wave PrincipleThe Wave Principle was Ralph Nelson Elliott’discovery of how social or crowd behaviour trends and sreverses in recognizable patterns. It is a detailed description of how financial markets behave. Thedescription reveals that there is a PSYCHE OF THE CROWD inherent in all representative financialmarket series. The crowd is not a physical crowd but a psychological crowd. It constantly moves frompessimism to optimism, from fear to greed and from euphoria to panic and back in a natural psycho-logical sequence, creating specific patterns in price movements. This concept of recursive patternsacross finer and finer scales in the financial markets (their fractal nature), was proposed by Elliott inthe 1930s, which antedates today’formal study of non-linear dynamics and chaos. sThe main point emerging from the Elliott Wave concept is that markets have form (pattern). It is herethat the investor finds determinism in a seemingly random process. Elliott discovered what the maininitiator of the chaos theory, Benoit Mandelbrot, confirmed 50 years later in collaboration with HenryHouthakker, an economics professor at Harvard: that patterns made by taking very short-term "snap-shots" of stock prices, for example every day are similar to patterns formed by snapshots taken oncea week, or once a month, or even once a year.Elliott isolated thirteen patterns. He cataloged them and explained that they link together, and wherethey are likely to occur in the overall path of the market development.The basic pattern shows that markets move forward in a series of 5 waves (1) and (3) and two sets of three wave patterns (2)of 5 waves of psychological development (from pessimism to and (4), a final set of 5 waves materializes and completes theoptimism). When these 5 forward waves are complete, a whole pattern.reaction sets in, taking place in 3 waves (from optimism to At this point, after wave (5) is complete, there is now a set ofpessimism). 3 waves (a), (b) and (c) of greater magnitude than the twoNumbers are used to designate "5-wave" patterns, and letters previous corrections. This set would correct the whole of the 5to designate "3-wave" patterns. These 8 waves then complete upward waves, which themselves had each broken into 5 anda cycle from which a new series of 5 waves commences, to be 3 smaller waves along the way.followed by another set of 5 waves. And finally, after two setsGlobal Technical Research - 23 -
  • 24. Technical Analysis - Explained Catalog of impulsive waves Impulsive patterns in bull markets Impulsive patterns in bear markets 5 Basic 2 3 5 1 4 v 4 1 iii i 2 3 3 iv 2 ii 1 4 5 4 Fifth wave wedge 1 ii iv 3 2 i 5 iii 3 v v iii 5 i iv 2 ii 1 4 Fifth wave failure 1 4 ii 2 iv i iii 5 3 v 3 2 5 (5) (2) (3) 5 2 3 1 (1) 1 4 4 (4) Third wave extension 4 1 (4) 4 (1) 3 1 2 5 (3) (2) (5) 3 2 5Global Technical Research - 24 -
  • 25. Technical Analysis - Explained Catalog of corrective patterns Corrective patterns in bull markets Corrective patterns in bear markets C C Simple ZigZag (5-3-5) B B A A A A B B C C C B A X C Double ZigZag B A B A C X A B C B B A C A C Regular Flat (3-3-5) A C A C B B C C Irregular Flat (3-3-5) B B A A A A C C B B B A D C E E D C B A Triangle (3-3-3-3-3)Global Technical Research - 25 -
  • 26. Technical Analysis - Explained 5 30 3 25 4 20 1 15 5 B 10 3 2 A 5 1 4 C 2 Oct Nov Dec Jan Feb 1998 Mar Apr May Jun Jul Aug Sep Oct Nov DecImpulsive wave patternsIf you have followed the argument thus far, the impli- 38cations begin to appear. Given a series of 5- and 3- 36 5wave patterns, the investor should be able to predict 34the continuation of the next 5-3 pattern until a largerwave pattern is completed. It is the knowledge of 32these patterns that allows the investor to recognizewhen a trend change will occur before it has occured. 30 3 28 26An example of a five-wave pattern is shown abovefor Yahoo. The chart is taken from our real-time rec- 24ommendation. We said in December that the long-term uptrend was not complete yet, and that at least 22 20 4one more upleg (wave 5) should be expected. 18 1The chart on the right is updated to show the 5-wave 16pattern that was completed from the low in August at 14 7.Wave correlation suggested that the minimum price 12target was around 35. The price reached 36 in wave 10 5and was immediately followed by a sharp correction.Ultimately, the price completed another five-wave 8 2pattern at 440. 6 C September October November December 1999Global Technical Research - 26 -
  • 27. Technical Analysis - Explained B D B D E A C E A CCorrective wave patternsPage 25 shows the corrective patterns which can appear in financial markets. Corrective patterns canbecome very complex and difficult to interpret. However, once a correction is completed, its formprovides important information on the most likely path of the next impulsive wave.The chart above displays one of the most widely recognized patterns: the horizontal triangle. It isshown on the hourly chart of ATT between 27 October and late November between 65 and 60. Soonafter wave E was completed the stock broke out on the upside and reinstated its larger uptrend.The triangle example above is one of a few thousand that we have seen developing. Some trianglesare ascending, some are descending and some are expanding. Together with the Zigzags and Flatsthey make up the list of corrective patterns.What sets the wave principle apart and ahead of other technical approaches is primarily this character-istic of design and form. Each market pattern has a name and specific form determined by a smallnumber of rules and guidelines. Yet, a specific pattern is never identical to another pattern of thesame type. The patterns are variable enough in some aspects to allow for limited diversity withinpatterns of the same type. It is this "self-similarity" which makes up the difference betweendeterministic chaos and random-walk.Global Technical Research - 27 -
  • 28. Technical Analysis - Explained Head H 5 H S S Neckline Left Right Shoulder Shoulder S S 3 B (2) 4 A Neckline of inverse head & shoulder S (1) (4) S Neckline (3) Target (5) H CHead and shoulder reversal patternThe H&S is the best known of all chart reversal patterns and is formed when an uptrend loses mo-mentum, levels off and then establishes a downtrend. At "3" on the graph above left, the uptrend ispowerful, with no evidence of a top formation. Volume tends to pick up as higher highs are made. Thedip to "4" on lighter volume is, at this stage, considered a correction within the broader uptrend. Therally to "5" on diminishing volume alerts the technician that a top may be close at hand. The fall inprices to "A" is breaking the uptrend, falling towards the previous reaction low at "4". The market thenrallies to "B" which is generally 50% to 61.80% of the decline from "5" to "A". To re-establish theprimary uptrend, each swing high must exceed the high preceding it. The failure of "B" to regain thehigh at "5" fulfills half the requirement for a trend reversal (i.e. descending peaks).Additionally the uptrend line by this stage has been broken on decline "5" to "A", and now all thatremains is the break of the "neckline" drawn under the two reaction lows "4" and "A". The neckline canbe upward sloping or downward sloping or may be horizontal. A closing break below the neckline onincreased volume activates this pattern.The measured target of the break is the height of the "head" above the neckline (wave 5 to wave A),projected down from the neckline break.The INVERSE head and shoulder formation works exactly the same only in the opposite direction.This basic head and shoulder has one negative aspect: investors have to wait for a break of theneckline to sell. However, such a break may occur rather late if the head occurs at a highly over-bought level. Applying Elliott Wave analysis together with momentum analysis provides a much earliersell signal which is when the five-wave uptrend tops and the correction starts to display impulsivepatterns on the downside. Moreover, Fibonacci correlations allow for a more precise method toanalyze the wave correlation, retracement and wave length as shown on the next page.Global Technical Research - 28 -
  • 29. Technical Analysis - Explained 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597, 2584........... 1.618 = 3/2, 5/3, 8/5, 13/8, ..... 1+1=2 2+1=3 0.618 = 2/3, 3/5, 5/8, 8/13, 3+2=5 ..... 5+3=8 8+5=13 13+8=21 A B C 21+13=34 34+21=55 55+34=89 89+55=144 AB/BC=BC/AC=0.618 144+89=233 233+144=377 Any length can be divided so the ratio between 377+233=610 the smaller part and the larger part is equiva- lent to the ratio between the larger part and etc........... the whole. The ratio is always 0.618.Fascinating FibonacciIt may surprise you to learn that the universe, the constellations, the galaxy, flowers, oceans, plant life,man, natural science, music, architecture AND THE FINANCIAL MARKETS have one thing in com-mon: the FIBONACCI SEQUENCE. Leonardo Fibonacci was a thirteenth century mathematician whodeveloped a number sequence of the form:1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987 ............ where each number is the sum ofthe previous two numbers.This sequence of numbers has some very important properties.For example: The ratio of any number to the next number in the sequence is 0.618 to 1 and to thenext lower number is 1.618.Between alternate numbers in the sequence the ratio is 2.618 or its inverse 0.382.These numbers have some special relationship of their own such as2.618 - 1.618 = 1 0.618 x 0.618 = 0.3821 - 0.618 = 0.382 1.618 x 1.618 = 2.6182.618 x 0.382 = 1Additional phenomena relating to the Fibonacci sequence includes:1) No two consecutive numbers in the sequence have any common factors.2) The sum of any ten numbers in the sequence is divisible by 11.3) The sum of all Fibonacci numbers in the sequence +1 equals the Fibonacci number two stepsahead.4) The square of a Fibonacci number minus the square of the second number below it in the se-quence is always a Fibonacci number.There are numerous relationships within this series, but the most important is 1.618 or 0.618. It isknown as the Golden Ratio or Golden Mean (or phi) and governs nature´s growth patterns.Global Technical Research - 29 -
  • 30. Technical Analysis - Explained Waves 1 & 2 Waves 1 & 3 Waves 3 & 4 0.382 or 0.618 0.618 or 1.618 or 1.0 0.382 2.618 1.0 1.0 Waves 1 to 3 & 5 Waves A & B & C in corrections 0.382 or 0.618 0.618 1.0 1.0 1.0 or 1.0 or 1.618 1.0 1.618 0.618 0.382 Wave correlations 1.0 The most important wave correla- tions in bull markets (impulse waves) Triangle waves and bear markets (corrective waves) are shown on this page.Global Technical Research - 30 -
  • 31. Technical Analysis - Explained 5 61.80% retracement of the entire bull cycle B from 3 1995 to 1998 1 4 A C 2 0.618 61.80% retracement of the entire bull cycle 0.382 from 1995 to 1998Fibonacci correlations - more than coincidenceA man´s body, if you divide the body at the navel - from the navel to the top of the head is about a0.618 ratio of the lower part of the body (from the navel to the feet).The ratio 0.618 to 1 is the mathematical basis for the Parthonon, sunflowers, snail shells, spiral galax-ies of outer space or the human DNA spiral. Spirals on shells when examined more closely are shownto have arcs whose lengths are ratios of their diameters that equate to 1.618, and the larger radius isrelated to the smaller radius by 1.618. This is known as the golden spiral. The Greeks based much oftheir art and architecture on this proportion.Financial markets have the same mathematical basis as natural laws. This is because the markets arenot only numbers or economic factors but most importantly reflect human nature: crowd emotionsin motion. Elliott was probably the first to associate Fibonacci with technical analysis and when hewrote "Nature´s Law" referred specificially to the Fibonacci sequence as the mathematical basis forthe wave principle: a bull market sub-divides into 5 legs, and a bear market into 3 legs which makes atotal of 8. If the subwaves are counted, we arrive at 34 waves (see page 23).The charts above show examples of a 61.80% retracement on a long-term basis. The decline fromJuly 1998 had retraced exactly 61.80% of the previous bull trend from 1995 to 1998 at 55. More-over, within the long-term uptrend, wave 1 traced out five subwaves from 4Q 1994 to 1Q 1996. Thecorrection traced out a perfect a-b-c pattern. Wave c was equal in length to wave a and the entire a-b-c correction retraced 61.80% of the previous five-wave structure. We could show you hundreds ofsuch examples.The wave pattern and the Fibonacci relations are the language of the financial markets. Ittakes time to learn it, but in the end you will understand what the markets are indicating andthat it is the mood of the crowd which shapes the fundamental world and not vice versa. Thefundamental news and trends are mostly triggered by mass mood psychology.Global Technical Research - 31 -
  • 32. Technical Analysis - ExplainedRisk disclosureInvestors should consider this report as only a single Structured securities are complex instruments, typi-factor in making their investment decision. For a dis- cally involve a high degree of risk and are intendedcussion of the risks of investing in the securities men- for sale only to sophisti-cated investors who are ca-tioned in this report, please refer to the following pable of understanding and assuming the risks in-Internet link: volved. The market value of any structured se-curity may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time toCS may not have taken any steps to ensure that the maturity, market condi-tions and volatility, and the creditsecurities referred to in this report are suitable for quality of any issuer or refer-ence issuer. Any inves-any particular investor. CS will not treat recipients as tor interested in purchasing a structured product shouldits customers by virtue of their receiving the report. conduct their own investigation and analysis of theThe investments or services contained or referred to product and consult with their own professional ad-in this report may not be suitable for you and it is rec- visers as to the risks involved in making such a pur-ommended that you consult an independent invest- chase.ment advisor if you are in doubt about such invest-ments or invest-ment services. Nothing in this report Some investments discussed in this report have a highconstitutes investment, legal, accounting or tax ad- level of volatility. High volatility investments may ex-vice or a representation that any investment or strat- perience sudden and large falls in their value causingegy is suitable or appropriate to your individ-ual cir- losses when that invest-ment is realized. Those lossescumstances or otherwise constitutes a personal may equal your original investment. Indeed, in the caserecom-mendation to you. of some investments the potential losses may exceed the amount of initial investment, in such circumstancesThe price, value of and income from any of the secu- you may be required to pay more money to supportrities or financial instruments mentioned in this report those losses. Income yields from investments maycan fall as well as rise. The value of securities and fluctuate and, in consequence, initial capital paid tofinancial instruments is subject to exchange rate fluc- make the investment may be used as part of that in-tuation that may have a positive or adverse effect on come yield. Some investments may not be readilythe price or income of such securities or financial in- realizable and it may be difficult to sell or realize thosestruments. Investors in securities such as ADRs, the investments, similarly it may prove diffi-cult for you tovalues of which are influenced by currency volatility, obtain reliable information about the value, or risks, toeffec-tively assume this risk. which such an investment is exposed.Global Technical Research - 32 -
  • 33. Technical Analysis - Explained T he inf ormation and op inions e xpr essed in this r epo rt wer e p rod uced by the GlobalDisclosure appen dix R ese arch de part men t of t he Pr iv ate B anking division a t Cr edit Suisse as of the dat e o f w ritin g and ar e sub ject to chang e witho ut notice. View s ex presse d in r espect of aAnalys t ce rtifica tion p articular se curity in this rep ort ma y be dif fe rent f rom , or inco nsisten t w ith, theTh e analyst s id entif ied in th is r epor t here by cer tif y tha t v iew s abo ut the compan ies o bserv ations and view s o f the C red it Suisse Resear ch dep artm ent of Invest mentand t heir securities discussed in this r epo rt accur ately r ef lect t heir per sonal view s B anking division du e t o the diff ere nces in evaluat ion cr ite ria. This r epo rt is notabou t all of the subject co mpanies an d secur it ies. The analy st s also cert if y that no d ir ected to, or inte nded for distribu tion to o r u se by , any p erson or ent it y who is apar t of th eir com pensation was, is, o r w ill be dir ectly or indire ctly r elated to t he citizen or re sident of o r located in any locality, stat e, coun try or othe r jurisdict ionspecific re co mm endation (s) or view (s) in this r epor t. w her e such d istrib ution, pu blication, av ailability or use wou ld be cont rar y to law or r egu lat ion or w hich wou ld subject Credit Suisse AG, the Sw iss b ank, or itsKn owledg e P rocess Ou tsour cing ( KPO) An alysts m entione d in t his re port are sub sidiaries or it s affiliates (“ S” to any r egist rat ion or licensing r equire men t w it hin C )em plo yed by Cr edit Suisse Business Analy tics (India) Pr iv ate Limited. such jur isdiction. All m ater ial presente d in this r epor t, u nle ss specifically indicated o ther wise, is un der copyright to CS. Non e of th e ma terial, n or its co nten t, nor anyIm portant discl os ures co py of it, may b e alte red in an y way , tr ansmitte d t o, copied or distribut ed to anyCredit Suisse policy is to publish re se arch re port s, a s it d eems appr opr iat e, based on o ther pa rty , with out th e pr io r ex press w r itten permission of CS. All t radem ark s,dev elopme nts w it h th e subject co mpany , the se ctor or the market that may hav e a ser vice m arks and lo gos used in this re port are tr adem arks o r ser vice marks ormat erial impa ct on the r esearc h v iews or o pin ion s state d herein . Cr edit Suisse po licy r egister ed trad emar ks or serv ice marks of C S or its af filiate only to p ublish inv estme nt resear ch t hat is impa rtial, indep ende nt, clea r, fair andnot misle adin g. T he inf ormation, to ols and m ater ial p resen ted in this re port ar e p rov ide d to y ou for inf orm ation purp oses only and ar e n ot to b e used or consid ered as an offer or theTh e Cr edit Suisse C ode of C ondu ct to w hich all e mploy ees ar e obliged to ad her e, is solicitat io n of an off er to sell or to buy or subscribe for secur ities o r ot her financialaccessible v ia the w ebsit e at : instr ume nts. CS d oes not offer adv ice on the tax conseq uences of inv estmen t andhttps://w ww.c redit-suisse .c om/gove rn ance /doc/code_of_ conduc t_en .pdf y ou ar e adv ised to con tact an indep ende nt tax adviser. Please n ote in par ticu lar that t he b ase s and lev els of tax ation m ay chang e.F or m or e de tail, ple ase re fer to the info rmation on in depend ence of financialre se arch, w hich can b e f ound at: C S b eliev es the info rmat io n and opinions in the Disclosur e A ppend ix of th is repo rt are ww.c redit-suisse .c om/lega l/pb_res ea rch/in depen den ce_e n. pdf a ccu rate and com plete. Info rmatio n and opinio ns presen ted in t he o ther sections of t he repo rt w ere obt ain ed o r d eriv ed f ro m sou rces C S b eliev es ar e r eliable, but C STh e analyst (s) respon sible f or pre paring this resear ch r epor t r eceived comp ensation m akes n o repr esenta tio ns as t o t heir accura cy or complet eness. Additionalth at is based up on var io us factor s including C red it Su isse’ tot al r eve nues, a por tion s inf orm ation is av ailable upon r equest. C S accepts no liabilit y fo r lo ss arising fro m theof w hich is g ene rate d by C red it Suisse Inv estmen t B anking busin ess. u se of t he mat erial present ed in this r epo rt, e xcept that th is e xclusion of liability do es n ot apply to the extent t hat liability arises u nder specific stat utes or reg ula tio nsAddition a l disc los ure s for the following juri sdictions a pplicable t o C S. This re por t is not to be relied u pon in substitut ion fo r t he exe rcise of inde pende nt judg ment . C S may hav e issue d, and may in the f utu re issu e, a t rading Hon g Kong: Other than any int ere st s h eld by the an aly st and/or associat es as idea regar ding this secu rity . Tr ading id eas a re shor t ter m tr ading opp ortu nitie s baseddisclosed in t his r epor t, Credit Suisse Hong Kon g B ranch does no t hold an y o n mar ket ev ents and cat aly sts, w hile com pany recom me ndations re flect invest mentdisclosable inter ests. Un ited K ingdom: F or f ix ed incom e disclosure info rma tio n fo r r ecom mend ations b ase d on e xpe cted to tal r etur n ove r a 6 to 1 2-m onth p eriod asclient s o f C redit Su isse (U K) L imite d and C re dit Suisse Se cu rities (Eur ope) L im ite d, d efined in the disclosure section. Be ca use tr adin g ideas an d com panyplease call +41 4 4 3 33 33 9 9. r ecom mend ations r efle ct d if fe rent assum ptions and analyt ical met hods, tr ading ideas m ay diff er f rom the compan y re co mme ndation s. In addition, C S m ay hav e issued,F or furthe r inform ation, includ ing disclosur es w it h r espect to any oth er issuers, please a nd may in the f utu re issue, o ther r epor ts th at ar e inconsistent with , and reachre fer to th e C red it Suisse G lob al Research D isclosure site at: d if fer ent co nclusions fr om, the in formatio n presen ted in this repor t. T hose re ports ww.c redit-suisse .c om/res ea rch/discl aim er r ef lect the diffe ren t assump tio ns, v iew s and analyt ical met hods o f t he analy st s who p rep ared them and CS is unde r no oblig ation t o ensur e t hat such o ther re ports are b rou ght to the att ent ion of any recipie nt of th is r epor t. C S is involv ed in manyF or t he h isto ry of any trad e ideas based on t echnical an aly sis ov er the prev io us 12 b usine sses t hat relate to compa nie s men tioned in this r eport. Th ese businessesmo nths, please v iew the d ocume nt at: include specialized trading , risk arbitr age , mar ket m aking , and o ther pr oprieta ry ww.c redit- t rading .suiss e.c om/le gal/pb_res ea rch/a dditiona l_file s/te c h_ dis closure .pdf In for mation, opinions and estimat es contained in t his r epor t r eflect a judg ment at itsTr ade ideas b ase d o n t echnical analysis ar e shor t term tradin g opportu nit ies that m ay o riginal dat e of p ublication b y C S a nd are sub ject t o chang e witho ut not ice. Thisdiff er from t he views of other C red it Su isse resear ch an aly sts. T rad e ideas may also r epo rt may prov ide the add resses of , o r co ntain h ype rlinks to, w ebsites. Ex cept to thediff er dir ectionally fr om inv estm ent rating s. e xt ent to w hich t he rep ort r ef ers to w ebsit e mate rial of C S, CS has not r eview ed the linked site and t akes no responsibility f or the con tent contained ther ein. SuchG uide to technical analy sis a ddre ss or hyp erlin k (including addr esses or hy per links to C S’ own w ebsit e m ater ia l) s is prov id ed sole ly f or y our co nven ien ce a nd in formation and t he cont ent of the linke dWhe re recom me ndation tables ar e me ntioned in the re por t, “ lose”is the la test C site doe s n ot in a ny w ay f orm part of th is docum ent . Accessing such w ebsite orclo sing p rice q uote d on the e xcha nge. “ T” M denot es t he ra ting fo r th e m edium -ter m f ollow ing su ch link throug h th is r eport or CS’ we bsite shall be at y our ow n risk. str end (3 – mo nth outlook) . “ ” 6 ST deno tes t he shor t-t erm tr end (3 – w eek o utlook). 6 Dis tribution of re searc h reportsTh e rat in gs are “ for a positive o utlook ( price likely to r ise) , “ for neu tral ( no big +” 0” Except as o ther w ise sp ecif ie d he rein, th is r epo rt is dist ribut ed b y Credit Suisse AG , apr ice chang es expect ed) and “”f or a negat iv e outlook (p rice likely to fall). –Outp erf or m in the colu mn “ per f” enot es th e ex pect ed p erf ormance of the sto ck s Rel d S wiss b ank, au thor ized and reg ulated by the Swiss Financial Mar ket Su perviso ryre lat iv e to th e be nchma rk. The “ men t” Com column in clude s the latest advice f ro m t he A utho rity . A us tra lia: T his rep ort is distribut ed in Austr alia b y Cr edit Su isse AG,analyst . In the column “ Recom ” dat e is list ed wh en the stock was recom men ded the S ydn ey B ranch ( CSSB ) (ABN 1 7 0 61 700 71 2 AFSL 2 2 68 9 6) o nly to "Wholesale"fo r pur chase (o pening p urchase). “ ”gives the profit or loss that has accr ued P&L clients as de fined by s7 6 1G o f the C orporat io ns Act 2 0 01 . CSS B do es not g uar antee t he per fo rm ance of , nor makes any assu rances w it h respect to th esin ce the pur chase r ecom mend ation w as g iv en. p erf ormance of any financial prod uct r efe rred her ein. B aha ma s: T his r eport w asF or a shor t int rod uction to technical analysis, p lease re fer to T echnical Analysis p rep ared by Cr edit Suisse AG, the S wiss bank, and is dist ribute d on behalf of C re ditExplained at: S uisse AG , Nassau B ranch, a b ranch of the Sw iss bank, r egister ed as a broker - ww.c redit-suisse .c om/lega l/pb_res ea rch/tec hn ic al_tutoria l_e n. pdf d eale r by the Sec urities C om mission of the Ba hamas. B ahra in: This rep ort is d istr ib uted by Credit Suisse AG, B ahrain B ranch, au thor ized and re gulated b y the C ent ral Ban k of B ahr ain (C BB ) as an In vest ment Firm Ca tego ry 2 . Dubai: ThisG lobal disclaimer / important information inf orm ation is dist ributed by Credit Suisse AG Dubai B ranch, duly licensed and r egu lat ed by th e Dubai Financial Services Au thor ity ( DF SA) . Related financialF or a discu ssion o f t he risks o f inv estin g in t he secur itie s mentio ned in this re port, p rod ucts or serv ice s a re o nly av ailable to w holesale custom ers w ith liq uid asse ts ofplease r efe r t o t he follo wing Inter net link: o ver USD 1 m illion w ho hav e suf ficient finan cial exp erience and u nder standing to w.c re dit-suisse .com /res ea rch/risk dis closure p articipate in financial mar ket s in a w holesale jurisdict ion and satisf y the regulato ry crit eria t o b e a client. F ran ce : This r epor t is distr ibu ted by Credit Suisse (F ran ce ),Ref er ences in t his rep ort to C red it Suisse inclu de sub sidiaries and affiliates. F or more a uthor iz ed by t he Aut orité de C ont rôle Pr uden tiel ( ACP ) as an inv estme nt serv iceinfor mat io n on our str uctur e, please use the following link: p rov id er. C redit Suisse ( Fr ance) is sup erv ised and r egulate d b y the Au torité de w.c re dit-suisse .com /who_ we _are /e n/ C ont rôle Pr udentie l and the Au tor it é des March és Financiers. Ge rma ny: C red it S uisse ( Deutschland) AG , autho rized and r egu lat ed b y t he Bund esanstalt f uer F inanzdienst leistung sa ufsicht (B aFin) , disse min ates resea rch to its clients tha t hasGlobal Technical Research - 33 -
  • 34. Technical Analysis - Explainedbee n prepare d by one of its affiliate s. Gibraltar: This report is dist ribute d by CreditSuisse (Gibra ltar) Limited. Credit Su isse (Gib raltar) Limited is an indep enden t lega l Imprintent it y who lly owned b y Credit Suisse and is regu lat ed b y t he Gibraltar Financia lServices Com mission. G uernsey: This report is d istrib uted by C red it Suisse(Gue rnsey) Limited, an indepe nden t legal ent it y registered in Guernsey u nder unde r Publisher15197, with it s registered addre ss at Helvet ia C ourt, Le s Ech elo ns, Sou th Rolf Bertschi, Managing DirectorEspla nade, St Peter Port, Guern se y. Credit Suisse (Guernsey) Limited is wholly Head of Global Technical Researchowned by Credit Su isse and is reg ulat ed b y t he Gue rnsey Financial S ervices Tel. +41 44 333 24 05Co mmission. Co pie s of the lat est aud ited accou nts are available on re quest. Hong E-Mail: rolf.bertschi@credit-suisse.comKong: Th is rep ort is issued in Hong K ong by Credit Suisse AG Hong Kong Bran ch,an Autho rized In stit ution reg ulated by th e Hon g K ong Mon etary Auth ority an d aReg istered Institu tio n re gulated b y th e Securities and Futu res Ord inan ce (Chapte r Technical Research571 of t he Laws of Hong Kon g). India: This repo rt is d istrib uted by Credit Suisse Beat Grunder, Assistant Vice President, ZurichSecurities (India) Private Limited ("Credit Su isse India"), re gulated by the Securit ies Tel. +41 44 333 5358and Exchang e B oard o f India (SEBI) unde r SEBI reg istration Nos. INB 230970637; E-Mail: beat.grunder@credit-suisse.comINF230970637; INB 010970631; INF010970631, with its registe red address at9th Floor, C eejay House, Plot F, Sh ivsa gar Estate , Dr. An nie Be san t R oad, Worli,M umbai 400 018, India, Tel. + 91-22 6777 3777. Italy: This repo rt is d istrib uted in Michael Macdonald, Senior Vice President, SingaporeItaly b y C red it Suisse (Italy) S.p.A ., a ban k incorpo rate d and registered un der It alian Tel. +65 6212 6655law subject t o th e supervision an d control of Banca d ’ Italia an d CONSOB , and also E-Mail: michael.macdonald@credit-suisse.comdistribut ed by Cre dit Suisse AG, a Swiss bank authorized to provide ban king andfinancial services in Italy. Jersey: Th is repo rt is distribu ted by C redit Suisse Christian Sutter ,Zurich(Gue rnsey) Limited, J ersey Branch, which is regulated by t he Jerse y Financia l Tel. +41 44 333 2069Services Com mission. Th e business address o f Cred it Suisse (Gu ern se y) Limited , E-Mail: christian.sutter.2@credit-suisse.comJerse y Branch, in Je rsey is: TradeWind House, 22 Esplanade, St Helier, Jersey J E23QA. Luxem bourg: Th is repo rt is distribut ed by C redit Suisse (Luxem bourg) S. 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All rela ted fina ncial products or services Research & Publications SQFwill only be available to Business C ustom ers or Market Count erp arties (as define d b y Uetlibergstrasse 231th e Qat ar Fin ancial Cen tre Re gulatory Au tho rity (QFCRA)), inclu din g ind ividu als, who P.O. Box 300have opt ed to be classified as a B usiness Custome r, with liqu id a sset s in excess of CH-8070 ZurichUSD 1 m illion, an d who h ave sufficient fin ancial knowled ge, experie nce andund erstan din g to participat e in such products and/o r se rvices. Russ ia: The resea rchcont aine d in t his rep ort doe s not constitut e an y so rt of adve rtiseme nt or pro mot ion fo r E-Mailspecific se cu rities, or relate d financial instrume nts. This research re port does n ot publications.research@credit-suisse.comre presen t a valuat ion in t he m eaning of th e Fede ral Law On Valuat ion Activities in theRussian Fed era tio n and is pro duced u sing Credit Suisse valuation m odels andme thodo lo gy. 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Credit Suisse Securities (Europe ) Limite d and http://www.directnet.chCredit Su isse (UK) Limite d, bo th aut horize d and regu lated by the Financial S ervice sAut hority, are associated b ut indep ende nt legal ent it ies wit hin Credit Su isse. The Please call your Credit Suisse Relationship Manager or mail toprotection s mad e availab le by t he Financial Se rvices Auth ority for retail clien ts do n ot publications.research@credit-suisse.comapply to in vestm ent s or services p rovided by a pe rson outside the UK , n or will t he for your personal e-mail subscription.Finan cial Se rvices Com pensation Sche me be available if th e issu er of th e investme ntfa ils to meet its obligations. SourcesUNITED STA TES : NEITHER THI S R EP ORT NOR ANY C OPY THEREOF MAY BE Charts in this report are from MetaStock from Equis International and fromSENT, TAKEN INTO OR DISTRIBUTED IN THE U NITED STA TES OR TO ANY US Datastream. Indicators are by Credit Suisse Private Banking.PERS ON. 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