I was asked by PM about "the boxes" and what happen if the bottom of a box is violated, but then the stock immediately gets "back" into the box (QLGC did that yesterday, with going under $42.5 and bouncing back, ZRAN did the same and I am sure many others did). First let me explain what the "boxes" represent, the bottom of a box is formed when buyers that "were "eyeing" a stock (or shorts) saw the stock run away, and then at night kneeled near their bed and prayed to the might one, if it just get back near my price, I promise, I'll buy. Similarly, the tops of boxes are formed by another group of faithful, that failed to sell on the last ramp, and now, kneelingly, promise to sell if it just get "close enough". As a result, the tops and bottoms of boxes have a tendency to form a triangle (raising bottom and declining tops, also known as pennants and flags in TA parlance). As a rule, the breach of either, indicates exhaustion of the faithful (at bottoms, no more faithful that wanted the stuff and at tops no more faithful that wanted to sell the stuff), and thus a new box is formed either above or below the last box. Thus such breaches are , typically, harbingers, of the next move. However, these must be taken with a "view" of what the market direction is, failure of bottoms near market bottom that are repaired rapidly, are often false failures and breaches of tops that occur near market tops are often "headfakes. Since I think that the market has at least another 100 Naz points or so to go before we bottom, I think that bottoms failure, even though such were repaired during the day late in the day yesterday, are indications that lower boxes are being "readied (like QLGC, for instance should have a range of about $37 to $42 in the next few weeks, and possibly even a fast run to the very high $20').
Like any technical tool, they work only statistically, and there are always going to be many cases where headfakes and whipsaws will get you.
Zeev |
