Trading the Line Special Report.
There's a need to understand, but that doesn't require knowledge. The God hypothesis, for example, allows you to have an unparalleled understanding of absolutely everything while knowing absolutely nothing … Give a man a highly simplified model of the world and interpret every event on the basis of this simple model. This approach requires no knowledge. A few rote formulas, plus some so-called intuition, some so-called practical acumen, and some so-called common sense.
Arkady & Boris Strugatsky, Roadside Picnic, 1972
...
A significant new high in January, some severe overnight drops and a quick panic collapse in price at the end of January followed by a manic recovery in February to another all time high...
Selling developed on the 22 January when trading at the upper extreme* of the channel and coincidently at 3333, (which reminded me of another strange number marking an historic low but I don't want to get superstitous, yet).
As has been the case in recent years, selling below the support of the Mid-Channel (the blue and yellow band) was met with volatility and very rapid buying followed by more selling, presumably as players buy to recover positions that are out of the money, selling again at the previous point of entry.
The deep panic on 31 January saw the market back at the pre New Year lows with presumably enough fear in the marketplace to install an important low and a liquidity event that drove prices back up through previous resistance at 3295.
The 3 day thrust off the low took the market back within reach of the upper extreme , acheived early on 06 February in Futures, before backing away slightly, maybe threatening to drop back after its over-enthusiastic move, but no, back to new all time highs.
Another touch of the upper extreme on 11 February and a close at the upper extreme on 12 February at 3379.
Fast and furious and all over the place.
With the market displaying such dynamic and intimidating price action, the obvious questions are: is the market fully priced again or is there still more upside ahead?
Firstly, we have a very bullish response to price lows.
Secondly, we have a new T structure centered at the recent low on 31 January, either small or large.
Thirdly, price is attempting to breakout up through a potential double top at the 3333 level. A level that could be psychologically and numerically important - one third of 10,000.
* The upper extreme of the channel is an approximation of the top of the energy channel discussed by Terry Laundry.
Save the image to your desktop to view a larger version
As we can see in the chart below with the T volume oscillator**, the recent Buy Signal on 04 February saw the T volume oscillator moving up from a deep low level and up through the declining lines from the previous high in the oscillator. This is the signature of a new T structure emerging.
The previous highs in price and oscillator - where the cash build up originates into the low-point - provide a length of time that we should expect that new buying power to last for, and this creates the projections forward in time.
Once the oscillator makes a high and starts to decline, this indicates profit-taking and re-cycling. A rapid drop and a movement below zero is a warning especially if the price continues to rise as it indicates a reduction in buying power.
For now, the oscillator continues to look strong suggesting that although at projections for highs from the recent structures, there is still the potential for further highs ahead.
The very large T structure - centered at the oscillator low on 05 August 2019 and drawing power from the oscillator high back in January 2019 - is looking complete, adding to the caution.
** The T volume oscillator is an indication of Buying Power within the market as a whole
*** The cash build-up line is a declining line drawn above a series of lower highs made in the oscillator.
Save the image to your desktop to view a larger version
The weekly chart shows that price (since moving above 3100) is above the trendline that initiated the 2018 collapses and also now at the upper rising trendline from the January 2018 high, suggesting that the market may again be at or near its long term target.
Note that significant weakness doesn't usually develop until moving below the red line (3266), strength above suggesting potential for new highs ahead.
The weekly T structures continue to overlap and combine - this has presumably provided the additional fuel for the breakout. Some caution is warranted as the most recent structures projected highs in late January and early February and possibly early March. The longer structures project potential into late May, August and September.
The oscillator continues to look strong since the October low.
Save the image to your desktop to view a larger version
The monthly chart shows the important trendline projected from the 2000 peak and the rapid move above it once it was effectively breached leading directly to the steeper trend-line from the 2016 highs.
Note that the recent move above 3250 in January took price to a parallel rising line from the January 2019 high before collapsing briefly and that price is again in that area with the move above 3350.
The Mega T structure projected another important high for October or November which instead developed into the breakout above 3030. The next major projection is for a high in September 2020 which is also in-line with projections from the more recent large long term structures.
The long term oscillator remains very strong supporting the breakaway move higher.
The suggestion is that price above here becomes increasingly over-stretched and at least some kind of consolidation and even a nasty pullback like we saw in 2016 and early 2018 may again be necessary to relieve some of the upward pressure and complacency and allow price to catch up with itself, but if price can continue to hold onto the trendlines we could see a continued move higher into perhaps an even more significant peak.
Save the image to your desktop to view a larger version
2020 is bringing some fast and furious action in the market with a range that is increasingly expansive, especially since the move above 2500. With price above 3300 we can only assume that this will continue. This is a Brave New World.
-
Regardless of whether the market can continue higher or whether significant lows are ahead of us, the simplicity of the proprietary price based S/T Signalling System will continue to keep us on the correct side of the market, with price currently back on a Buy Signal since opening above 3266 on 04 February at 3290.
If you would like to learn more about using the S/T Signalling System please get in touch.
-
To receive detailed daily analysis, guidance and the updated daily Buy / Sell trigger levels being generated by the Trading the Line system before the market opens, and intra-day alerts when appropriate, please become a Member and Sign up for Alerts & Observations - includes access to Members Area, Explanatory Notes (pdf) for all of the concepts discussed, and Notes on Day Trading (pdf)
Disclaimer: This is the diary of a personal trading system, its methodology and the signals that it is producing. You are welcome to follow along but please understand that the information presented here is for educational purposes only. No recommendations are being made to buy, or sell stocks, options or futures contracts. Please consult your own financial advisor before making any investment decisions.
