Stretching to the Line, One Last Time
by David Nichols
If you're a student of the market, I want you to take a close look at this next chart. In a real sense -- at least to my admittedly skewed way of thinking -- it holds an important key to the way markets work .
This is now, in my estimation, a complete up fractal pattern. A fractal pattern is a recurring chaotic structure that repeats itself in form, but without any set boundaries. I think of it like a snowflake. Each snowflake forms in essentially the same way, and has the same basic structure; however, each snowflake is different, based on the way energy is applied as the process unfolds.
Also, a fractal pattern, by definition, is self-similar in all time-frames; i.e., the smaller trends up and down also exhibit this same pattern. If you look closely at the first up leg, for example, you can easily see a similar pattern.
The point I'm getting at -- in what I realize is an extremely obtuse way -- is that I think this up fractal is now complete, right at SPX 1060. That's a bold statement, I realize, and more evidence needs to be arriving soon in the form of lower prices to prove this statement correct, or we can go back to the drawing board on this analysis, and you can once again unleash the "doofus" e-mails on me.
But right now this looks to be perfect. The market has just made a parabolic move up, pinching in to touch the fractal's line of central tendency, at a perfect ending spot. As I wrote yesterday, I was looking for just such a chunky move up to tag that line, and that's just what happened.
I've found that up fractals are followed by down fractals, and down fractals are followed by up fractals. So now we should start forming a down fractal (think of it as a "down snowflake") of unknown size and length. We will, however, have an idea of its basic shape, and a pretty good estimate of its potential size based on the first leg down -- if that is indeed coming now. Once the process starts, I should have a pretty good idea where we are in the pattern. At least I hope so. It's not an exact science by any stretch.
I know that many of you want to know more -- much more -- about this fractal pattern. (I can see the e-mails in my head already!) Unfortunately, it's not entirely all my own work, but rather was mostly taught to me by a true market genius, building on some of my own observations. I need to get permission from him before really spelling out all the details -- which I promise, I'll work on.
Another little piece of not-so-trivial evidence about a possible turning back is the good old 38.2% retracement level of the entire bear market, which just happens to reside right here at SPX 1060. I've shown this chart often, but it's worth another gander.
With such lines -- especially an important line on this monthly time-frame -- we have to allow some wiggle room before jumping to too many conclusions. The market is not an exact mechanism by any means, as anybody who has watched it for more than an hour can tell you. But if the bear market is going to re-assert itself at this critical level, it shouldn't go too far beyond 1060. Personally, I think if it can pop through 1060 convincingly and hold, then the bubble is going to quickly inflate all the way up to the 50% line at 1150.
That would be wacky. But hey, anything is possible. That would also mean I've got this up fractal completely wrong, and it's actually a much bigger fractal that is sub-dividing and heading for the stratosphere. Really, I only think such a move to 1150 is even possible if we get another quick, hard, scary leg down. So we'll see about that.
It's much more likely that the down fractal will now show up with a swift descent down, followed by a tepid bounce, and then we'll have a much better idea where we stand. We don't need to rush into positions quite yet if I am characterizing this properly, as there will be plenty of time and movement if this is correct.
Also, for subscribers, Tim Wood has delivered a timely update on his reading of the "3 Peaks and a Domed House" pattern, with some more interesting reading from George Lindsay, who originally characterized this intriguing pattern. Check that out on our web site!
One last personal note: I'm taking an extremely rare night out to go to the New York premiere of my Uncle Mike's latest film, called Angels in America, with Al Pacino, Meryl Streep and Emma Thompson. So I'm pretty excited for that. However, it's an HBO mini-series, so it's going to be a late evening, and I'll likely deliver a late Briefing tomorrow morning. I'll also let you know how the movie is -- with a complete lack of bias, of course.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: Filled by 0.4% to 1.1% full of negative sentiment.
SHORT-TERM: Moved from an Advance Phase to a Neutral condition.
MID-TERM: Flattened out into Neutral from an Advance phase and is now at 91/9 with Confidence dropping sharply back to 0 from a bullish condition.
LONG-TERM: Progressed 1% to 96% on the advance side but with Confidence dropping back a point to a bullish 4.
BOTTOM LINE: Once again, it's possible for the market to grind higher, but it's extremely vulnerable on a sentiment basis to more explosive downside action.
Of particular interest is the fact that on Friday the Put/Call Ratio was 1.12. Daily Put/Call conditions above 1.0 often lead to a short-term pop up (too many bears have already taken positions and they get squeezed). But then on Monday the P/C Ratio was slashed in half to 0.63 on the breakout--and for most of the day that ratio was well under 0.60. When the P/C Ratio sinks under 0.60 to a short-term dip often ensues. The market has gotten too complacent too quickly. Now, put the two together, and what do we have? A market that doesn't really know whether to "spit" or go blind.
So, maybe we grind higher, but the market will require a continuing stream of bullish fundamental news to do so. If that stream gets interrupted, then we should see at least some regression to the mean (down).
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
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