Friday, February 12, 2010
Here is a pair of point and figure charts showing 24 hour e-mini trading. The lower chart is a one point box, five box reversal chart. The upper chart is a five point box, one box reversal chart and is a condensed version of the lower chart.
In the lower chart you can see that the market has broken above its descending trend channel while making a series of higher lows. I see a sequence of 35 point boxes evolving here and I think the market is currently in a 1057-1092 box (dash blue rectangle). I also think it bounced off of the support line of a green dash, bullish trend channel. Within a week or so the ES should be trading near the top of the current box and the upper line of the trend channel (green oval).
On the upper chart I have drawn a box of about 107 points in height encompassing the drop from 1148 to 1041. I think that during the coming weeks the market will establish itself in a 1095-1202 box. The lower line of the new box will be the midpoint of the current box. This is typical of the way boxes tend to stack on top of one another. The 1200 level is resistance for another reason. The July 2008 low, made when Fannie Mae and Freddie Mac collapsed, was 1200. This should prove to be resistance as strong as the resistance which was provided by the 1137 level, the low in September 2008 at the time of the Lehman Brothers collapse.
The sideways trading range that has developed during the past week on the upper chart is I think significant. It is bigger than any sideways range we have seen in the past year, and occurs at the bottom of a break in a bull market (still above a rising 200 day moving average). This combination of circumstances generally occurs prior to the start of a new bull market up leg. Counting across this base formation (horizontal green line) yields a target of 1155, a new bull market high.