Archive for October, 2010

In my post last week, I said that, TopFinder TF1 having ended, we were entering the expect consolidation that follows the end of any TopFinder.  And indeed, all of last week price was essentially in a sideways consolidation.

Last week I also said, “What should we expect to happen next?  The thing to watch is whether price remains above the closest-in Midas support, S2.  If S2 holds, then price will go on to new highs, up to the end of the next TopFinder, TF2.”  And indeed this past week, S2 did hold, price turning up from S2, at the large green up arrow.  So, I’m expecting price to edge higher on its way to the end of TF2.  If average daily volume continues as it has in the recent past, then this trip to the end of TF2 will take approximately seven trading days.

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In my post here of a week ago, I said that the TopFinder marked TF1 had about two or three more days to run, after which we were to expect a consolidation.  And that is exactly what has happened, as we see in the updated chart here.  TF1 ended last Wednesday, after which price has been flat, the beginning of the expected consolidation.

I’ve added to this chart something which I probably should have put on last week’s chart, and that’s the light, dotted purple curve.  This is a TopFinder that’s fit to the small left-most arrow, and which tracked the highly accelerated move from late August to mid September.  That TopFinder ended on Sept. 20th, after which there came the extended consolidation up to that pullback on Oct. 4th.

Now we see that TF1, the TopFinder that was fit to the pullback of Sept. 23rd has also ended and we’re entering another consolidation.  These are the typical behaviors of TopFinders.  Perhaps instead of calling them Top Finders, they should be called Consolidation Finders, since they identify the end of an accelerated trend and the beginning of a consolidation.

What should we expect to happen next?  The thing to watch is whether price remains above the closest-in Midas support, S2.  If S2 holds, then price will go on to new highs, up to the end of the next TopFinder, TF2.  But if price breaks below S2, that’s the start of a new downtrend.

The TopFinder TF2, which is fit to the Oct. 4th pullback, is still running, and is now 72.3% done, with its projected end at the horizontal location of the right-most dashed vertical line.

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In updating my last week’s post, I’m taking this opportunity to use this as an object lesson in the use of the TopFinder.

Last week, I showed that the TopFinder on that chart was about 75% complete.  During last week, as shown in the first chart here, price pulled back significantly on Oct. 4th, then thrust strongly upwards, breaking out of the consolidation of the last couple of weeks.  The Oct. 4th pullback is quite prominent, and now appears to me to be more significant than the Sept. 23rd pullback to which the TopFinder was fit.  I would identify the Oct. 4th pullback as the first major one of this whole uptrend, the one from which S2 should be launched, as shown here.

So, what about the TopFinder shown last week, labeled TF1 here, which was fit to the Sept. 23rd pullback?  Should we discard it?  No, it’s a valid TopFinder, fit to the first pullback of any kind in the uptrend, and is currently about 91% complete, projected to end at the horizontal location of the first dashed vertical line, probably three or four days from now.  We should keep this on our chart.

As I’ve explained in detail in our forthcoming book, when a new significant pullback occurs, one should fit a new TopFinder to it.  A priori, we don’t know which one of them will turn out to be more useful, so we should keep track of both.  So, here, I’ve fit a new TopFinder, labeled TF2, to the Oct. 4th pullback, and it’s 61% complete (as of Friday, Oct. 8).  TF2’s projected end is at the horizontal location of the second dashed vertical line, which will probably come sometime in early November.

What I’ve just described here may be confusing to those who are new to using TopFinders, since people are usually expecting one indicator that will clearly identify the top.  It’s important to understand what a TopFinder does and does not do.  It does identify an accelerated uptrend that is all “of a kind”, with price behaving in the same way all the way to its end.  The end of a TopFinder does identify the end of this kind of price behavior and the beginning of a consolidation even if it’s only a brief consolidation.  And the end of the TopFinder does identify the place beyond which price behavior will be distinctly different.  However, in spite of the catchy phrase “Top Finder”, it does not necessarily “find the top”.  After the consolidation, price may resume going up, albeit with a different pattern than before the end.

With this understanding, it is quite possible that TF1 on this chart will end in a few days, followed by a consolidation, and then a new uptrend could begin, taking us to the end of TF2.

Let’s now look at the long term, the monthly bars chart, the second chart here.  This year’s April high occurred at the confluence of the 61.8% Fibonacci retracement level and the height of the Highest Resistance Curve (HRC).  That April high was at 1219.8, and since then the HRC has declined to 1217.08.  We also see the latest R1 curve, whose level, 1165.34, is also marked on the daily bars chart, the first chart here.  Last Friday, price poked above R1 and then retreated to close just below it.  Today, Monday Oct. 11, as I’m writing this, I see that price has already edged above last Friday’s high, so it’s very likely that the uptrend will continue above R1.

Now let’s look again at the daily bars chart, but over a much longer timeframe the first chart here, all the way back to early March of this year; this is the third chart here.  I’ve marked the height of the monthly HRC curve, along with the horizontal level of last April’s high.  We’re expecting that price will go into some kind of consolidation once it reaches the horizontal location of the first dashed vertical line, a few days from now.  Beyond that, it could turn down into a new downtrend, or it could resume upward motion.  If the latter happens, we’re expecting the end of that overall uptrend to end at the second dashed vertical line.  At what price will that end?  We don’t know for sure, but it could well be at the big red arrow, where HRC intersects the second dashed vertical line.  I’m not predicting that’s what will happen, only observing that this is a reasonable price target.

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This is the update of my Sept. 26th post.

Things are essentially unchanged from last week.  Price is still holding at the H2 resistance level.  The TopFinder is now 74.6% complete.

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