|
In my last article on Santos (STO:ASX) in Issue 300 of the Trading Tutors Newsletter, I focussed mainly on Price. To students of WD Gann and David Bowden this is commonly referred to as the First Dimension of analysis. This time I would like to include a consideration of Time, or the Second Dimension. Of the two, Time is the more important. Gann said that ‘when the Time is up the Volume of sales will increase and force prices higher or lower.’
To recap our previous discussion, we looked at an ABC trade that had been unsuccessful. However, I finished by saying, ‘despite the failure of this individual trade, we are still looking for higher prices in this market.’ For this reason I would not have taken the ABC Short trade that showed up on 18 March.
Indeed, you should not have been taking any short trades on Santos since last October. Why do I say this? Consider Chart 1 below. Santos made its low on 17 October 2008, around the anniversary of its top on 9 and 19 October 2007. On 21 November, when the overall market made its major low at the end of the big sell off in the second half of the year, Santos made a higher low, which gave a very good 2-day ABC Long trade.
Also, Santos is an Oil stock. What was the price of Oil doing in the last few months of 2008? It kept falling to lows around 19 December. So while the markets around it were tumbling, Santos was getting support at higher levels. Someone was buying the stock, so don’t buck the trend!
Chart 1 – Market Action Since October 2008
click to enlarge
Now to more recent matters. Chart 2 shows a new ABC Long trade that came in on 31 March. You can see that the market is now clearly outside of its sideways range and above the 50% level that stopped the previous trade.
Chart 2 – Current ABC Long Trade
click to enlarge
This trade could have been taken in a few ways. For those of you with the Number One Trading Plan, you could enter on 31 March, which was an Outside Reversal Day, as the market broke the high of 30 March. Alternatively, you could enter on 1 April when the high of Point C was crossed, or on 2 April, when you could have entered using a 2-day swing chart.
In any case, you might be thinking that the market is running out of steam. A week after Point C, and it still hasn’t made the 50% milestone of the trade. Is something wrong? This is where it pays to watch time periods. In Chart 3 I have illustrated a couple of them.
Chart 3 – Calendar Day Counts
click to enlarge
63 days is a time frame I have mentioned before on Santos. 182 days is, of course, half a year, and a point which Gann said is very important to watch for a change in trend. You would say that a pretty significant turn happened in this market 182 days ago.
These time periods, I should point out, are calculated backwards from Point B. This is not at all the sort of thing we want to see in a trade. We want our harmony in time and price to come together at Point A or Point C. Point B should be no more than a pause in the current move. The last thing we want is for Point B to be an important change in trend.
There are other time frames, both in calendar and trading days, that are significant here, and for anyone who wants to learn some more, I encourage you to find them. For any students who have followed Aaron Lynch’s articles on Oil over the years, calculate the number of days between the low of 17 October 2008 and our ‘Point B’ of 27 March 2009. That will tell you something.
Knowledge is Power!
Tim Walker
|