Noel
Campbell |
Back in the first issue of the Trading Tutors Newsletter for 2004 I wrote about how the Dow Jones was in a potentially exciting position. That has not changed in the slightest and a dramatic sell-off has not yet eventuated. |
| In Chart 1 we have some of the analysis that indicated it was time to keep a closer eye on the Dow. The market was in the position for a potential a big Double Top (and basically still is). The run up into the second of the tops (January 2004) was relatively steep, which is always an indication of how you could expect the market to run down further out. The market took off for the first couple of days and it looked like ‘game on’. However for the first week in February the market basically went sideways and lost all selling momentum. This was a sure sign, early in the piece, that the market was not ready to follow through on the downside just yet. I mentioned in the previous article that we would need to see a clear ‘Overbalance in Price’ as indication to whether this is the real deal or not. You can see on Chart 1 I have highlighted the failure to follow through with the pale blue circle. This is certainly no Overbalance in Price or Time when you consider the bigger picture. |
Chart 1
click chart for more detail
| I have a very basic way of describing how you can form read a market running out of a potential set-up. That is, as a general rule, the faster the market runs into a set-up, the faster you can expect it to run out of the set-up. It is that simple. In Figure 1 you can see the basic concept, sharp run in, sharp run out and vice versa. It is this sharp run out of the set-up that puts the element of fear into the market, especially in those that have bought heavily near the top. There is no real fear in this market at the moment - the perception in the general market is it should keep going up. |
Figure 1
Chart 2
click chart for more detail
| To finish off this week I have one more chart to show you. Chart 2 is the close in view of the recent market action on the Dow. The run up this last week was quite spectacular and managed to take out the late January top. Hopefully some of you will recall how in previous articles I have written about ‘False Breaks’. This is where the market takes out an old top or bottom, but then fails to follow through in that direction. We can eliminate being caught by false breaks by using a ‘Close Filter’. I’m out of time to expand on that further now, however the short of it is, before we can be confident that the market has much further to run on the upside the market must show the ability to close above the old tops for consecutive days. At this stage the market has only managed to hold one close above the Double Tops and therefore has not yet satisfied the ‘Close Filter’. We are still at a very interesting time and I’m looking forward to the market action to come in the first quarter of 2004.
Until next week......
Noel Campbell
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