The 200% Double Bottom Rule in Action

In last week’s article I discussed the power of Pressure Points with an example on the ADJ Sector Index chart. Back in Trading Tutors Issue #46 I outlined how Pressure Points from a recent Double Bottom in the SPI200 were proving extremely influential. Chart 1 shows the image put together for that article, highlighting the Pressure Points that were coming into play. Here we are using the October 1 low, 3151 and the November 18 low, 3161. The peak between the two bottoms was the October 22 high of 3316. You can see how well the market had responded to the 100% and 50% Milestones.

Taking a quote from the article, "The next two key levels to watch are the 150% Pressure Point, 3408.5 and 200%, 3491. The 200% Pressure Point of course is a Double Top with the 3500 high of March 2002". Taking another view with regards to the Pressure Points is to use the Reference Range of 3151 to 3316 (165 points) and add this to the average of the Double Bottoms (3156). This gives us a 200% target of 3486 (3156 + 330).

Taking a second quote from that article, "We have a couple of price targets now in mind both suggesting we could see more up before any real down". Well of course history shows that the top of the SPI200 is presently April 6 at 3486. Five points off the original 200% target and an exact hit with the price target calculated by adding 200% of the Reference Range to the average of the Double Bottoms. Chart 2, shows the most recent market action for the SPI200.

We know this 200% target lined up nicely as a Double Top with the March 2002 high of 3500 and a sell off here is no real surprise. What we will be looking for now before getting overly bearish, is a reaction that exceeds any previous reaction we have seen for the bull market that started in March 2003.

The greatest pullback to date for this bull cycle was the last pullback from 3316 to 3161. This pullback was 155 points. The lowest point we have reached following the 3486 top is currently 3332. Giving us a range off the top of 154, a near equal range. To have seen a bounce from the 100% target based on the previous range is once again no surprise for us who watch Pressure Points. What will be a telltale sign is whether the market has the capacity to run further than 155 points this time around. The trend on the Two-Day Swing Chart is currently clearly down, however we will need to keep an eye on our Swing Chart trends closely and be prepared to just follow the market signals.

Until next week......

Noel Campbell