Spiders and S&P's

Here are two point and figure charts of the Spiders. I last commented on this market here.

The methods of point and figure charting were the very first technical methods I learned. For the past 40 years these kind of charts have been my favorite method of analysis. I think a point and figure chart makes visible critical information which is not generally apparent in a standard bar or candle chart. If I had to choose only one technical method, point and figure charting would be it.

The first chart above this post shows trading in the Spiders since the February 22 top. A single box is 0.10 Spider points high and each column of boxes contains at least 5 boxes. This is known as a 5 box reversal chart based on a box size of 0.10 points.

You can clearly see the three rallies that have stopped in approximately the current price range. Notice that the trading range between 140 and 141 over the past three days covers more columns that any on the way up from the March 5 low. This makes me think that the rally from that low is essentially over.

Across the 141.10 level this recent trading range is 10 columns wide. Since this is a 5 box reversal chart we multiply 10 by 5 and get a potential price target 50 boxes or 5.00 points lower. This is the 136.10 level and shows that we have seen enough distribution to break the Spiders to new lows.

But when I look at the second chart above this post, I begin to suspect that we will see one more rally high before the move down begins. This second chart is a 1 box reversal chart and shows the action during the past four trading days in much more detail. What I find interesting here is that starting late on Friday, March 9 the market has traded a lot in the 140.10 to 140.40 range, the low end of the recent trading range between 140 and 142. This suggests to me that there is some modest accumulation by shorter time frame traders, enought to support a move at least to 141.90 and possibly even a point higher than that.

The thing to remember is that if this rally develops it will be brief and be followed by a move down to 135.