As a general note, it must be recalled that on 9/21/01 there was already been an instance of price dropping below the ACT. The formula for subsequent RR held that time.
RR = price high minus price low divided by price high times price low plus price low.
From low of 8062, which was 3688 off the high of 11,750 (a 31.38% drop), the ensuing bounce went to 10,673 in 5 months...80 points above the RR target (a 32.36% bounce...close enough to the 31.38% target to be statistically significant).
The IL had left this price area well behind by then so it was about halfway between the IL and ACT.
All this activity was a result of 9/11 so it went into the files as "event driven".
Then another "event driven" period of activity, as a result of the realization that there would be an invasion of Iraq, produced another drop below the ACT.
A very sloppy bounce off the 10/10/02 low of 7197 took 16 months to go to 10,746, a 49.31% bounce.
The sloppiness can be attributed to the market going from perception of the realization to witnessing the actual invasion 5 months later to produce a double bottom.
The % difference from the market top to 7197 was 38.75% so that particular bounce well exceeded what RR would target. That may have been set up by that double bottom.
What I keep in mind about these two drops below the ACT is that they were both entirely event driven. It would be very difficult, if not impossible, to say that the usual dynamics of market supply/demand could be used to describe the 2 drops below the ACT but the IL/ACT/RR dynamics apparently remained in evidence.
That brings us to the current period. This time, there is certainly more of the usual dynamics involved. There's been no singular "event" to produce what we're seeing that I'm aware of. It looks more like the usual filtering of the myriad of information everpresent in buy/sell decision making. I attribute this morning's initial exact hit on the ACT today to this.
BUT...since there's already been two seperate times when price has fallen below the ACT, even though they were event driven, it's "soggier" now. And since, two times already, there have been drops below the ACT followed by highly significant bounces, a failure of the ACT to produce another highly significant bounce becomes more remote.
We'll see where all this goes...soon enough I'm sure.
Doug R |
