Archive for January, 2011

As this daily bars chart of the short term shows, over this past week volatility has increased dramatically.  At the end of last week, I was expecting a new down trend to emerge, based on the fact that price had been holding below resistance while breaking support.  But, mid week, price robustly broke above resistance (R1), then two days later crashed down and closed below S4.  In Midas theory, breaking both resistances and supports illustrates greatly increased volatility.

At this point, there’s no visibility as to which way this will resolve on this timeframe.  We should watch for either support at one of the levels below here – S3, S2, S1 or weekly S2 – or, look for breakout above the latest high.

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In the first chart here (daily bars), we see that the short term up trend I showed last week has now essentially ended.  (The position of the dashed vertical purple line actually should be a bit further to the left, but the charting software won’t let me move it less than one average bar width.)  At the end of a TopFinder we expect a consolidation, and indeed here the consolidation has already begun, confirmed by those two doji candles.

In fact, we may even already be in the beginning of a new short term down trend.  The lower whisker of Thursday’s candle broke rather significantly below S4, and on Friday the new R1 successfully resisted the top of that day’s candle.  So, we’re breaking support while holding resistance, which is the classic Midas definition of a down trend.  How far down will this retracement go?  The likely places for a turnaround are S3, S2 and S1, and also the level of S2 from the weekly bars chart, the second chart here, which right now is at 1226 and rising rapidly.

On the second chart here we see that the intermediate term up trend is still in force, now about 71% complete.  How far up will it go?  To estimate a target for it, look at the third chart here, the long term monthly bars chart.  We see that during 2009 and 2010, price very nicely acknowledged the Fibonacci retracement levels.  So, I have added the uppermost 76.4% level, which is the complement of the 23.6% level.  This level is 1362, and I have copied that onto the second chart, the weekly bars chart.  This 1362 level could be a target for price once it gets to the horizontal location projected by the TopFinder, however, price would have to keep rising at a very steep rate to get to that target.

In summary, we’re expecting a down trend in price on the short term chart.  On the intermediate term chart, this will appear as a pullback, from which we will be able to launch S3 in the hierarchy of S curves that is tracking this up trend.  We’re expecting this uptrend to end at the vertical dashed purple line, which looks like it’ll take something like 6 to 8 weeks to get there.  The Fibonacci level of 1362 is an upper limit price target for this up trend.

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This past week has made a lot of things clear, leading to major updates of both the short term chart (daily bars) and intermediate term chart (weekly bars).

The first chart here is the short term daily bars chart, updated from last week’s post.  I’ve removed a number of things on the chart that are no longer significant in order to reduce clutter.  The dotted purple curve is the TopFinder that we’ve been following for a few weeks now.  It ended during a brief consolidation.  On Tuesday of this past week, price started a strong upmove, and on Wednesday it broke out above the consolidation range and kept moving.  So, we’re in a longer up trend than was identified by the old TopFinder.  This does not mean that the older one was invalid or that this methodology has somehow failed.  The older TopFinder tracked a shorter term trend that ended in a brief consolidation.  We see now that this older trend is embedded in a longer term uptrend.  This embedding is a common occurrence, illustrating the fractal nature of the market.

It makes sense now to move the identification of S4 to start from the Jan. 10th low at the arrow.  That low is quite significant, so now I’ve fitted a new TopFinder to that low, starting at the same Nov. 29th low as the last one, and it’s shown in the solid purple curve.  It’s projected total cumulative volume is 15.84 million shares, of which 13.43 million have already transpired, meaning it’s 84.8% complete.  The projected horizontal location of the end of this trend is at the dashed purple vertical line, implying that it’s got about another week to go.

The second chart here is the intermediate term weekly bars chart.  The last time I showed this chart was last year in my Nov. 29th post, and I suggest you scroll down to have a look at that.  In today’s update of this chart, I have also removed a lot of now extraneous chart elements to reduce clutter, and am focusing on the last 12.5 months.  It’s obvious that we’re in a powerful uptrend that started on Sept. 3rd of last year, and this uptrend is far from finished, having spawned only two Midas support curves so far, S1 & S2.  I’ve fitted a TopFinder to the pullback of Dec. 3rd which is projecting a cumulative volume length of 61 million shares, of which 41.1 million have already transpired, meaning that this uptrend is 67.4% done.  The projected horizontal location of its end is at the dashed purple line, implying approximately two more months to go.

These two TopFinders, the one on the daily bars chart and the one on the weekly bars chart, are not inconsistent.  Each is addressing a different uptrend on a different timeframe.

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We see here that on the first day of this new year, price broke strongly above the resistance range we’ve been watching.  But, as I wrote here last week, there is a TopFinder that’s fit to this uptrend that started at the end of last November, and its projected end is at the horizontal location of the dashed vertical line.  At the end of December, this TopFinder was 77% complete (in terms of cumulative volume).  Now, we see that it is 97.4% complete, close enough to declare that it is finished.

On this chart here, I’m focusing more closely on this uptrend.  I’ve identified that the first pullback during this uptrend was really on Dec. 8th, so I’ve moved the identification of S2 to begin on that date.  Subsequently, I’ve identified the rest of the Midas hierarchy of support curves – S3 and S4 – starting from the 3rd and 4th pullbacks.  It is very common for an accelerated uptrend to spawn such a 4-fold hierarchy, so this uptrend is typical, and well tracked by both this hierarchy and the TopFinder.

Going forward, we should expect at least a few days of sideways consolidation.  If price does not significantly penetrate S4, then it is likely to form a new uptrend at some time in the near future.  However, if S4 is broken, then a new downtrend will have started.

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During the very light trading of this last week of 2010, price has come up to the top of this resistance range and backed off a bit.  With so many traders away for the week, I don’t put much credence in this pause.

Look at how far above the new S1 this uptrend is riding.  There was a bit of a pullback in mid December, which is so far above the new S1 that this confirms that this uptrend is a strongly accelerated one, so one may fit a TopFinder to this trend.  I’ve done that, shown in purple, fit to the Dec. 16th pullback.  The projected cumulative volume for this uptrend is 11.6 million shares, and at this point the uptrend has consumed 8.94 million, or 77%.  The projected horizontal location of the end of this accelerated uptrend is at the dashed vertical purple line.

My expectation is that in the new year this uptrend will continue to the projected end, most likely coming at a price somewhat above the top of this resistance range.  However, in the unlikely event that price doesn’t break above the upper resistance at 1266.4, and if it breaks below the new S2 launched from the Dec. 16th pullback, then this uptrend is over.

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