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Aaron Lynch The life of a trader searching for the change in trend, in the current SPI market has been a lonely and somewhat disappointing endeavour. To call a definite change in trend at this stage may prove to be premature, though I wanted to share with you the price based techniques I have been using to rate the strength of the current move.
Referring back to Trading Tutors Issue #79: 15 Oct 2004 I explained the way Gann used the first range out as a guide to projecting future price movements. Using this technique, I penned a resistance point at 3793. In the office we watched the day session of the SPI hit this point and retrace. It did not prove to be a significant halt to the trend, but the market did pause before moving on. You may remember that the first range out was 341 points. In the chart below, I have used that same reference range again and added to the recent low on Oct 25th.
Chart 1
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The 341 point range has not been repeated at this stage and looking further into the recent movement, you will note the recent high was made on Oct 18th. So using this method, we should measure the current move and compare to the initial range of 341 points. You will note in the chart below, measuring from the low on Oct 25th to the high on Nov 18th, the SPI has moved 226 points. This is 66% of the first range out.
Chart 2
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Looking for price clustering is a concept that is common to most technical traders and particularly to Safety in the Market. Using a tool that has been discussed regularly in trading tutors, the Tubbs Swing tools, we can also identify areas of price support and resistance. Taking a bigger picture look at the SPI, I have measured the last major bear cycle. Using the two point tool on the weekly chart, the 50% pressure point comes in at 3910, only a few points away from the 3906 price, using the first range out studies.
Chart 3
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More can be done with resistance cards and retracement tools that are taught with the Number One Trading Plan. With any classic setup for a change in trend, time must form a part of the analysis. There are some interesting points to watch around the high on Oct 18th. Those who have access to the time based tools, might want to run some analysis back from this date and see if it exhibits any harmony.
One final part to your analysis will be to use a combination of both time and price. Using a Gann angle from the low in March 03 at 2679, we can gauge the strength of a trend. Using this tool to rate the move, you will note on the chart below that the market action has found resistance and moved away.
Chart 4
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Some have been caught in this bullish run, by going short too soon; waiting for the first lower swing top will add greater confidence to a bearish move. Having a view to where a market is heading, is always a healthy way to trade. It gets you prepared for an occurrence and it makes it easier to act. Be careful to watch the market and be prepared to modify your view, as more information unfolds. Time will reveal everything!
Good Trading
Aaron Lynch
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