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Welcome all Safety in the Market traders to this month’s dedicated newsletter. It has now been over 2 months from the low on the SPI200 on 9 February and the market has not pulled back for more than two days. If you study a 3-day swing chart you will see that it is a straight swing up. That’s a great run and over 60 days is nothing to be sneezed at for sure.
I’m on record as looking for an end to this run and some dominance from the bears in what has been a great ‘running of the bulls’ since the March 2009 low. I’ve shown you some of the Master Time Cycle theory that leads me in that direction. There is more I could show you there but this time around I’ll let you look it up yourself. If you are a ProfitSource trader, look up the DJ-Cash chart and check out the market action for 1930.
Many stocks on the ASX made tops in October 2009 and January 2010. That positions April as a month of interest as it is approximately 3 and 6 months respectively from October and January. BHP is one of those stocks with an 11 January 2010 top and puts us right around 90 days from that top right now. Mat Barnes and I just finished our Gann Jump Start workshop in Brisbane and as a group we found a lot of great potential trading opportunities coming up in the next few weeks. I really enjoy that workshop as the majority of the students are learning techniques associated with time analysis for the first time and the study of time is my favourite discussion.
Of course time should always be backed up by price and what I mainly want to share with you this month is some basic, yet fundamental Gann price analysis work we completed on BHP. Chart 1 is the bar chart of BHP showing the market action from the May 2008 high through until present. Using the ‘Preset Gann Square’ in ProfitSource I have constructed a ‘Low’s Resistance Card’ for the 21 November 2008 low of $20.00.
Using that Low we get the following key 25% pressure points:
| Year of Low |
2008 |
| Price of Low |
$20.00 |
| Percentage |
Price Resistance |
| 100% |
$20.00 |
| 125% |
$25.00 |
| 150% |
$30.00 |
| 175% |
$35.00 |
| 200% |
$40.00 |
| 225% |
$45.00 |
| 250% |
$50.00 |
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Chart 1 – BHP – $20.00 Low Resistance Card Pressure Points
click chart to enlarge
Studying Chart 1 you can see the market bounced around the 175% and 200% resistance levels. The 100% level at $40.00 proved to be particularly strong. The most recent high in April has come in basically right on 225% of the low or 2.25 times the low. It is interesting to note that 250% of the low is a perfect cluster with the all-time high of $50.00 in May 2008. It seems BHP loves these round numbers.
At this stage the April high is also a ‘false break’ of the January top. A false break is where the market takes out an old top or bottom based on technical buying or selling and fails to hold the break-out (or breaking of that top or bottom). In this case the market only managed to hold above the old high for 2 days before breaking back below it.
This resistance card work I’ve shared with you on BHP is an example of some of the essential price work you should be doing on your favourite stocks. I know Mat Barnes has constructed many of the essential resistance cards for all the stocks that make up the ASX20 and provides those to the students that are part of the Advanced Trader Coaching program. There have been many good things said about that program and getting you started with these resistance cards is invaluable.
To wrap things up this month I’m going out further on a limb and saying that I have not changed or given up my opinion that we are still on the lookout for a top and a decent top. The sentiment out there is starting to get crazy bullish and all the talk is of stopping things from ‘overheating’. That’s certainly the case with the RBA ramping up interest rates. I know during the second part of 2007 the talk was about higher interest rates to help slow the economy and we all know how that ended up.
Until next month...
Noel Campbell
Professional Derivatives Trader
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