Tim Walker |
In Issue 327 we looked at Resistance Cards as a means of identifying potential prices where a market may find support or resistance. We looked at 3 types of Resistance Cards – Highs, Lows and Ranges – and saw that each of them will give different prices to watch, but sometimes they give the same or similar prices to watch, which is called a Cluster. Like a good detective, the more pieces of evidence you have, the more likely it is that you will solve the case!
As a postscript to that article, did you do the work on Woodside Petroleum (WPL:ASX)? If you did you would be a happy trader. The question was posed, ‘Can you see the relationship between the November 2008 low of 26.81 and the September 2009 high of 52.98 on WPL? What is this telling you?’ This, of course, is saying to create a Lows Resistance Card. 26.81 x 2 = 53.62. At the time of writing that article, Woodside had made a high at 52.98, just short of 100% of the low price. On 23 Sept it hit 53.12, and on 1 Oct 53.08. This made 3 tops around this resistance level, and since then the market has started to fall.
Chart 1 – WPL Lows Resistance Card
click to enlarge
This shows the value of Resistance Cards in causing reversals in markets. However, a price chart is not merely one-dimensional. They are two-dimensional. If the Price is looked upon as the first dimension, then the second dimension is obviously Time, as these form the two axes of the chart. If we can create Resistance Cards in the first dimension (Price), then why not in the second dimension (Time) as well?
Chart 2 below shows our regular sample market, Santos, with a Time Resistance Card drawn on it. Just as there is more than one way to calculate Price Resistance Cards, so there are several ways to create them using Time. This chart uses a simple method of counting the days from a major turn.
A simple time frame of 30 days is marked, counting forward from the 17 October 2008 low. Why 30 days? Here, although we are counting from the date of the Low, we are using the simple cycle of a year, which is 365 days. We can use 360, as it is a round number and makes the calculations easier. Then we calculate the percentages, just as we do in looking at a Highs Resistance Card, for example. So 50% would be 180 days, 25% would be 90 days, etc.
We can then use these counts to identify potential dates to watch going forward for turns.
Chart 2 – Day Counts from October 2008 Low
click to enlarge
If you work your way carefully through this chart, you can see how this simple cycle gave you indications of where this market would turn. The dates of nearby turns are labelled. Some of them, such as 16 March, came in exactly on the predicted date. Others, such as 16 February, came in close, as the exact date fell on a weekend. Still others, like 13 January and 11 September, came close to minor turns, which produced a reaction but didn’t influence the overall trend.
Obviously there is more to this technique than watching every 30 days. But it is another piece of the puzzle that you can use for confirmation of your projections. Currently it would have us watching around 12 October for the next turn.
Knowledge is Power!
Tim Walker
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