The Power of Ranges - ADJ

Over the past week I have been doing some analysis on the various sectors of the ASX200. Sector Analysis can prove to be extremely valuable for a number of reasons. Sector Analysis breaks the overall market down into smaller, related groups, allowing you to look at what industries are leading the main trend of the ASX200.

Another major upside to undertaking this form of analysis is that once you have identified the hottest sectors in the overall market, you can then focus your trading on the highest weighted stocks in the sector. I will spend more time discussing sectors over the coming months.

This week I discovered a perfect example that illustrates the Power of Pressure Points. Here, I am talking about Pressure Points considering the bigger picture. Those traders who say they use David Bowden’s and Gann’s lessons can’t say they are serious if they aren’t spending some time analysing the bigger picture.

One terrific tool for analysing ranges in the bigger picture is the ABC Pressure Points Tool. In Chart 1, I have a weekly chart for the Consumer Discretionary Sector, ADJ. Using the range from the December low, 1831.8 to the late January high, 2028.1 as a reference, this has been added to the late March low of 1917.5.

The first thing to note about this chart is how quickly the market moved through the 50% Milestone. The sector chart showed virtually no reaction off this 50% level, which is always a very positive sign that a chart will reach the 100% Milestone or beyond.

As the sector reached the 100% Milestone (2113.8), the chart shows the first reaction, retesting the 75% Milestone before again finding support. The next point at which the sector chart encountered resistance was at the 133% Milestone. The last two weeks have seen a retest of the 100% Milestone again finding some degree of support. From here we can look to what the market may do. This is just another example of how powerful in terms of support and resistance Milestones from previous range can be.

Should the sector break below the 100% Milestone without breaking the top at 133% it will be time to look for downside targets for the low of a retracement, before another advance in the sector.

A 50% retracement of the current range would bring the sector back to the 66% Milestone, 2047 (half of 133%). The 75% Milestone is 2064 and we have an old top at the beginning of September 2003 around 2050. This gives a strong cluster of Pressure Points and a level to watch for support between 2047 and 2064.

Should the sector revisit these levels it will be time to focus on the highest weighted stocks in the Consumer Discretionary Sector. NCP would be the stand out stock for this sector and a quick study of the NCP chart proves that. If the sector is to move away from this level again NCP will be a big part of that movement and a stock to watch for the bulls.

Until next week......

Noel Campbell