Noel Campbell
Any of our readers that have been following the Share Price Index (SPI) know it has definitely been a good few weeks for records, with virtually new highs achieved day after day. The index has been on a seemingly unstoppable run over the last couple of weeks, but as the old saying goes, ‘all good things must come to an end’. The question is; when does the party stop? When is it time to make your exit and head for home to avoid a hangover?
Readers who have been following our Newsletter closely will know that I made a prediction just before Christmas in Trading Tutors Newsletter Edition #138 (16 December 2005) that the SPI could top at around 5040. This call was first put together at the Gann Mastery Seminar in Sydney back in late October 2005, just after the market made its nasty pull-back off the 30 September high. The date nominated at that seminar was 22 March. Now while that has not ended up being the final high, I am pleased to say that the market traded at 5040 for the first time in history on the 22 March 2006, which is a victory of sorts.
Considering the market has now pushed higher, there is no alternative other than to go back to the drawing board and rethink the next dates to watch. Chart 1 is the most recent market action on the SPI (AAI-SpotV) daily bar chart, trading within the Permanent Square of 458.
Chart 1 – Share Price Index Daily Bar Chart
click chart for more detailIn this week’s article I have gone a little further with the theory than I normally would for such a widely distributed newsletter. So for those of you who are not completely familiar with our advanced Gann techniques, it may be pushing you to the limit and beyond.
As I mentioned earlier, Chart 1 contains the SPI trading within the Permanent Square of 458, which is a technique using one of Gann’s most admired discoveries, Square Overlays. Squares are a trading tool I wouldn’t be without, although I use them in a measured way.
The recent high on 4 April 2006 (5235) has come in just over the 1 x 1 angle within the permanent square, in a weak position. This is a good place to see a potential market top. The market action on the 4th saw a very clear signal day and higher than average volume, which are both solid indications. This high has also come in 46 degrees from the 16 February 2006 low and right on one of my Time by Degrees dates for the month of April. I managed to get myself short on this day at 5223, with stops placed at 5236 after the high of 5235 was in place. I’m not getting too carried away with anything just yet as April may bring more surprises and records. The stop has been moved to 5206 as a back-up measure and considering the low close on 4 April, if it’s going to go, it should go hard.
As you can see in Chart 1, I have also measured Time by Degrees out from the 21 October low (4309) and 180 degrees from this low comes out on 18 April 2006. This date happens to be the 100 year anniversary of the great earthquake in San Francisco, which is where I happen to be right now! Around this date will be a strong time pressure. If the market is pushing into new highs at that time, once again I’ll be consulting the permanent square for assistance along with Ranges and Resistance Cards.
We are currently in very exciting times and the potential for profit is extremely high for both the bulls and the bears. This is definitely a traders market and not a time for long term investing. It made me laugh to hear that some investment banks have finally upgraded National Australia Bank (NAB) to a buy. It’s been going up for months! These are the kind of things I like to hear when I’m sniffing around for a top in the market. The fullness of time and the market action will complete the story.
Until next time…
Noel Campbell