Here is a daily chart of the cash S&P 500 and its daily trading volume (Thanks to StockCharts.com!).In the current, high volatility environment I prefer to day trade the e-minis. However, the same methods that give me an edge over very short term fluctuations can also provide insight into what the market is doing over longer time frames.
I can illustrate this idea by explaining how I came up with my current 840 upside target for this rally from the 666 level. First of all, I noted that the last rally, the one from the November 21 low at 741, carried the index up a little more than 200 points. A rally of similar size now would carry the average up to 866 (blue rectangles). I also like to use the midpoints of reactions to compute likely support and resistance levels. In this case the midpoint of the rally from the November 21 low was about 840. So I am using this lower number as my target while recognizing that the market could easily go 25 points higher than that without disturbing the rhythm of the bear market.
A note on volume: People put too much emphasis on whether or not volume is expanding or contracting during a price trend. My own view is that the most important comparison to make is between level of volume during the current price trend and the level of volume during previous trends in the same direction. On this score it is clear that the S&P 500 volume during this rally has generally been higher than the volume on any previous rally during the past 6 months. This is a clue that this rally is not over and that the 840 level is a reasonable target.
12 comments:
Carl, with today looking like a trend up day, why wouldnt you consider the day's lows are already in? I am just trying to understand what makes you feel that a strong reversal is pending once we hit 773 levels, rather than today's range being 758-783?
Thanks!
how long will it takes to get to 840 Carl? last time it took a month and a bit from 741 to 940.
I am curious to see how the afternoon turns out. When we hit 771 the first time I thought we had reached the highs and Carl was just off a couple of points, but here we are at those levels again. Do you still think that we will see 748 today?
Carl, we just hit 772.64 are you still considering going short as you mentioned earlier?
"without disturbing the rhythm of the bear market"
I take it you now think we have lower lows coming eventually?
Dear 1:22 pm:
You take incorrectly.
Carl,
I'm finding some similarities here with a possible wave 4 count of a primary, with wave 3 of that primary being the drop from 943.85 to 666.79 on your chart. A 38.2% retracement here in wave 4 being approx 772.63, a 50% retracement being approx 805.32, and a 61.8% retracement being approx 838.01. Sound familar?
I think this is real analysis which is both useful and educational! I look forward to more of such analysis.
Still going short Carl or do you think we are going higher?
Using midpoints of previous rallies for future overhead resistance was something Gann liked to do as well. Gann highlighted this throughout his Commodities book. In fact, he used a number of simple methods in that book that seem to be forgotten.
What is your 10-year projection for the Dow Jones? Will 2010 to 2020 be our lost decade? Semilog plots of the Dow Jones from the 1932 low through the 1982 low does not show support anywhere nearby.
10 year dow projection: dow=2020
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