The basic problem with your four-year trendline is that it fails to include the low in Sept. 1998. To me it's apples and oranges. Why not draw the straight line up from the low of March 96 and connect to Thursday's low
Hi! Okay, let's examine this,
The basic problem with doing what you describe is you're going through extreme prices. This trendline is largely dependent upon a low made in the week of 9/4/98. That defeats the purpose of the trendline: to graphically display crowd behavior, not price extremes.
To better illustrate, graph THQI on *closes* instead of highs and lows. This shows the true trend and makes it clear why the trendline should begin in 1995. The link below shows that:
stocktrendz.com
A second important thing is to remove the "veil of ignorance." This term originates from Public Policy & Management, and more specifically, from Rawlsian economics. By drawing the trendline through the low of yesterday, you're making a personal vantage statement. You see, you want the trendline not to be broken so you choose those points which are consistent with that supposition. A true trendline should be drawn without knowing whether or not it is broken today. You should pick 2 lows and then connect a line through them and see then whether the line is broken or not.
Keep an open mind. Your trendlines also miss highs, and have significant breaches (yours are on the low side).
This is a different matter. The support line goes through all major points (as evidenced by using closing prices). The *channel* line does not, which is drawn parallel to the uptrend line. The fact that it does not hit all major highs is NOT important because it is not the independent variable here; the uptrend line is. The channel line is the dependent variable.
The fact it doesn't hit all highs shows weakness. THQ was in a beautiful channel through much of 97 but then the rallies began ending lower than the opposite channel line. This meant Bulls were no longer strong enough to push prices to the maximum where they had been in previous years. This is sign of weakness.
But because the situation is so unclear, I can't agree with you that the major long-term trend has been broken.
I think using closing prices should remove all doubt.
Conservatively Yours,
Raymond J. Norris
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