Some ideas I’m toying with this weekend… 

Parallel lines that seem to do a pretty good job of correlating from one cycle to the next.  This series was established by drawing a trend line from the 2007 to the 2011 top, then copying it and dragging it elsewhere on the chart — keeping the line parallel.

Astounding how often they play a similar role (to their initial role) years later, both in terms of support and resistance.  All drawings are in log scale, by the way.

Let’s add some more trend lines, and see where this goes.  This first TL has always fascinated me.  It goes back several decades and does a great job of defining the last three tops.

It marked the point of departure for the 2000 top, then caught its eventual collapse.  That catch was the point of departure for the 2007 top and ultimately limited the backtest that was the 2011 top.

Now lets add some fan lines from the significant bottoms.   We’ll start with A, the point of departure (from the long term trend line) for the 2000 bull market.  Let’s call it a “point of origin” and extend yellow fan lines to subsequent significant bottoms.

As you can see, it’s sort of a three strikes and you’re out proposition.    The initial fan line (a) stays close to and guides the advance.  The subsequent fan lines (b, c) arrest a decline, only to turn around and serve as resistance for the next backtest.

The market reverses after the backtest, then falls 2-3 parallel lines — ultimately establishing a new major bottom.  In this case, the bottom occurs back at our original long term trend line, labelled Point B.

We’ll construct the same fan lines from Point B and Point C, the 2009 bottom.   The last line for 2011 is pure conjecture, but the 2nd looks like a pretty safe bet.

Now, let’s overlay the 2008 market move on the 2011 grid, just for grins.  It’s been working pretty darn well as an analog ever since I first suggested it in May.  It troubles me that Elliott Wave International recently latched onto it, as widespread recognition might just ruin its validity for the rest of it.  Oh, well.

The result might be something like this.  There are many things I like about this chart, and a few that need to be worked out.  I’ll play with it more over the next few days and let you know how it turns out.

More later.


Doodling — 5 Comments

  1. Good point, AR. I watch TL's on RSI very carefully, but rarely will use them as sole justification for a reversal. I DO use them to identify possible turning points, starting with the daily chart, and moving down the line with 60, 30, 15 and 5 minute charts. If I see, for instance, that we're about to hit the daily RSI TL, I'll check the 60 minute and see if it's also at a turning point, ditto for 15 and 5. Also, if I see a 5 or 15 about to hit a TL, I'll check the longer term charts and see where we are there. But, as you say, there's no guarantee the RSI TL will provide a reversal. That's where the price TL's, fan lines, other momentum indicators come in. And, my favorite, the harmonic picture.

    Take GC for instance. I'll add a section up above as an example, and we'll see what happens over the next day or two.

  2. Pebble, that's kind of an interesting exercise that you've done. I personally have never been very convinced that it could help though because I never could figure out which line might come into play as support. I say that with total respect for your efforts though… please don't misunderstand me.

    Interestingly, Saboya does something similar with RSI's on a constant basis. He searches for a line which is 'touched' most often by the RSI and swears that it'll come into play in the future. I've challenged him a time or two on that when he 'misuses' it, in my humble opinion. For example, when he sees that an RSI has crept right up to, and is touching his line, he draws the conclusion that it has stopped there and will reverse immediately. I don't agree with that because it's speculative. In fact, I've often seen the RSI subsequently continue right on through his line as if it wasn't even there.

    But Saboya's a good character and kind of a fun guy, so I don't mean to be giving him a hard time. I think he's a good trader, so all the power to him.

    Please keep going with your great stuff. It's 'always' worth while seeing what you're working on. Thanks for sharing 🙂

  3. Good question, and way beyond my pay grade. I guess it depends on your outlook on humanity's ability to muddle through. I just redrew the last couple of legs down – not wanting to violate EW and all. Even so, this shows P3 as being not much worse than P1. Throw in a puny P5 and we're still down to 4-500 for the Cycle level. So, I guess this would be the optimistic view, huh?