Time To Draw Some New Trendlines!
The Qs broke above the magic 44.86 level today, clearing the range of the last couple of months, and printing a “higher high.” As a correctly-drawn trendline should go thru the lowest low preceding the highest high, today’s action redefines the longer-term trend from this:
To this:
The December downturn is now a pullback into the uptrend, instead of its break and failure. Hindsight is everything, no? This is another wonderful example of how things aren’t nearly as clear during as they are after.
I’ve mentioned recently that I was optimistic about the slight spark in the economic reports which may indicate a bit of growth, a touch of inflation, and even (gulp) a little strengthening of the dollar. This would be great news for our economy, and for the stock market. Whether the apearance of strength is real or just a mirage remains to be seen (I believe the correct expression is that we Need More Cowbell).
Cowbell aside, the chart is what matters in the end. With the new high, we at the newer, more patient DummySpots are watching for a thrust and pullback on diminishing volume, at which time we will look to enter in the direction of the primary trend, which is now, of course, up.
Born2Code said,
January 11, 2007 @ 11:24 pm
the action is very bullish. i have a long term IRA account with about 20 diversified holdings of various size, various sectors, various countries… every single one of them was up today… i have not seen this screen completely green before.
however, i am not sure i completely agree with your re-drawing of the trend line. at least not just yet. i think you are a bit early. this action may be “taking out the stops”. I would be more comfortable with the new trend line when we print a higher low, or if the resistance we pushed thru on the third try becomes support.
Will said,
January 12, 2007 @ 12:06 am
Born2Code- thanks for the comment and the observation. I’m simply using Trader Vic’s method of drawing a trendline so that it goes through the lowest minor low preceeding the highest high, without passing through any prices in between. Today’s higher high is now the “highest high,” so the line moves over to the low preceeding it.
This is not to say that confirmation isn’t necessary. In fact, today’s action isn’t a signal to trade at all, in my book. We could very well fail strongly, making this a “2B” top. Or we could thrust upward on surging volume, in which case I’ll be jumping on board long at the first pullback. I completely agree with you that today’s action isn’t enough to take a position. However, a clear, rock-solidly consistent and repeatable method of drawing trendlines is a necessity in order to avoid the treachery of the “trendline Ouija Board” and drawing them so that we “see what we want to see.” I chose Vic’s method because it’s simple, clear, and, well, I love him, man!
BTW, as we know, a good linear regression will show us clearly the mathematical “trend” of a given period, and the “new” trendline as drawn is within about 2 degrees of being perfectly parallel to a linear regression line thru the trend of the last 6 months or so. I often compare them as a kind of “line confirmation,” and this one matches up well, so I’m pretty comfortable with it.
Thanks again for the visit!
Born2Code said,
January 12, 2007 @ 12:18 am
yep, i realize that you are using trader vic’s method. that’s why the 2B top, aka taking out the stops, occurred to me.
i happen to be re-reading the book these days, and i also concur, he is awesome.
i also want to thank you for your earlier post, people are strange. great post, great story.
Will said,
January 12, 2007 @ 9:12 pm
B2C - thanks… it was one of those “catharsis” writings I’ve just gotta get out of the way once in a while to unblock the pipe
More New Trendlines, and a Chart Quiz • dummyspots.com said,
January 22, 2007 @ 9:37 pm
[…] Back in my January 11 post, I noted that we needed to redraw our longer-term trendline on the Qs due to their having hit a “higher high.” Well the S&P did the same thing last week, so we’re a bit overdue in redrawing that one. Here’s the previous trendline with the December break: […]