Tubb's And The SPI?

Recently I haven’t had to go far to hear or see suggestions that the next bull market is already under way. It seems the concerns and pessimism relating to the capitalist world has fallen by the way side in the wake of the Iraq War. One thing the world learnt earlier this century was that war is good for economies. It generates spending across many areas in industry and in turn creates jobs. With the focus shifted back to general affairs now the war is over, corporate America especially needs to ask itself if the reasons for its previous market downturn have actually been alleviated.

I am very much a believer in taking mechanical trades day-by-day, as they come. However, it is always important to keep your eye on the big picture at the same time. Based on this I want to share some recent analysis with you. After previous articles in this newsletter on the subject, I am sure many of you are familiar with the Tubb’s 2 point Swing Rule. For those of you unfamiliar, Tubb’s Law of Proportion basically states that a market will move above a swing top in percentages based on the distance it has moved below.

As many of you may have heard Noel mention, it is best to start your analysis on the big picture and move in to the smaller picture from there. Based on this, let’s take a look at the SPI on a yearly chart to illustrate the rule.

As you can see the SPI has pulled up just short of the 100% mark based on its range down from 2387 to 1184. The 100% mark was 3617, leaving a difference of 117 points from the all time high of 3500 in March of 2002. This 117 point differential translates to only 3% of the target price. It is also interesting to note it found support on the 25% mark.

To get an idea as to what this means to us over the shorter term we will switch to a daily chart. Below is a chart showing the same rule applied to the 3100 top in January, based on the range down to 2679. As you can no doubt see, the market bounced off the 50% mark almost exactly and is now finding resistance at the 25%.

Finally here is a rough gauge of where the SPI may end up if it breaks the 3151 low from October 1. This being the case, I would be confident in expecting a run down to at least the 50% level.

The main thing I want to emphasise is to take the trades as they come. This analysis is a bit like an “if done” order with your Broker. It only applies if the market takes out the low. If it doesn’t, we just move on. I am not interested in being right all the time, just profitable. There is a difference!

Hopefully this has given you further insight into the use and effectiveness of the Tubb’s tools. These can be found at the bottom of the ‘Line’ tab, on the ‘Tools’ bar. More information on the Tubb’s courses can be found on our website.

We will be sure to revisit this in the coming weeks. Until next week,

Happy Trading

Jordan Craw