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Strategies & Market Trends : The 56 Point TA; Charts With an Attitude -- Ignore unavailable to you. Want to Upgrade?

To: RWS who wrote (29265)	5/8/1999 3:41:00 AM
From: Doug R	Read Replies (4) \| Respond to of 79243

RWS, This is going to be a very long post. First of all I have to say that as far as the technical progress of the market is concerned, I wouldn't be a buyer here. Now for the long part. The first rule of buying is...NEVER chase the price up. The other first rule is...buy low. There's a gray area that can occur between those two "first" rules. Ascertaining which "first" rule to apply at any given time boils down to the solving of the most important conundrum with which to wrestle on a TA level; the technical reset. I'll repeat those two words in order to emphasize them; technical reset. As technical progress mounts, in a stock or an index, there will eventually develop a pivotal circumstance that represents an opportunity to make a decision. To recognize that a decision opportunity has presented itself is more than half the battle. Wether or not LG has properly recognized such an opportunity is another matter. The fact that LG publicized his opinion that a decision point is upon us is entirely his option. There is certainly a very large timing component here. As far as timing goes, I chose several factors that arose during the 2nd week of April in order to arrive at my own conclusion that risk would heavily outweigh potential reward insofar as committing new money at this particular juncture in the technical progress of the market. In doing so, I have taken a step beyond what LG was willing to do. That is risk that I was willing to take on. LG was not willing to take on that risk and that is his perogative. NOW...for the real stuff: When I look at the technical profile of a stock in order to decide wether or not to buy it, I DON'T buy stocks with the profile that the Dow and S&P 500 currently exhibit. If I owned a stock with such a profile, I would be eager to sell it. David J, after attending the Myrtle Beach seminar, took the ball and ran very hard with it in order to discover what he dubbed the "magnet" system of support and resistance. It's the most powerful independently derived tool I have seen. The "problem" with it is that it's so new and revolutionary that there has yet to be a formal trading system devised to take full advantage of it...so far. There has been enough observation and tinkering with the magnets to conclude that trend lines drawn through magnet signal days have significant predictive value in that price reacts to the intersections of these trend lines ijn advance of the intersections. The reaction keys off of activity seen in relation to either the underlying magnet line or the derived magnet trend line. When a line is used as support, the price will run up until the trend intersection occurs. If the line fails as support, the price will drop until the trend intersection occurs. There is a one or two (sorry to hedge on this but...) day "grace period" around the intersection where short term momentum can stall in advance of or run the price direction beyond the date of intersection. With magnet stuff in hand, David J has pointed out a S&P intersection for 5/10. Even though I was aware of that, I have been in favor of using the last week as an opportunity to "distribute" but the Dow has persisted in moving higher. Now back to the conundrum. As the market has moved higher over the last few weeks, the technical profile has deteriorated...significantly. The runup has proceded right into the magnet intersection. David has repeatedly referred to the support provided by the '86 magnet uptrend line. The market, while using a line such as that while moving toward an intersection and running up while the TA has deteriorated, shows the strength of this magnet stuff. The question now becomes, does the date of the magnet trend line intersection point to an intermediate term top? Or does it point to a technical reset? There are countless examples I have seen where a stock will move up while the technical profile "resets". Stochastics can go down on a stock that is going up...resetting for another upward crossover or giving the indicator room to put in an acceleration off of a knee while going through a key resistance line or value. This is where the major problem of TA lies. Is a downturn a breakdown...or a reset??? The only technique I've found that comes close to pinpointing a downturn as a reset is the 3 dRSI trick. It's a very small part of the technical universe but when one can spot it happening, it's quite reliable. As far as resets go...there are actually hundreds of (or more) variations on the general theme. Codifying reliable patterns of resets is an area of TA that has not received much attention. There are some techniques that peg a successful reset after the fact...the "failure swing" and the "stochastics knee" are the two most widely known...but...they are both...after the fact. (at least I can claim that the 3 dRSI trick can be used during the fact.) Next...here we are at another new high on the Dow with continued technical deterioration. There has never been a significant move in the market that did not bring a correction upon the chart. The Dow bottom since the last correction was 7,100. GEEZ...that's 56% in about 8 months. GEEZ...that's a run through10,000 without (so far) a retest of that obviously significant psychological barrier. GEEZ...that's less than 5% from the by-the-book projection given by that very awesome inverted head and shoulders formation that was built in a very respectably orderly fashion last year. BUT...GEEZ...if what we're seeing is a massive technical reset instead of a technical telegraphing of a normal correction....GEEZ...this market could go bonkers. I'm still in the correction camp but I'm prepared to be wrong if the situation dictates that. If interest rates on the 30 yr. bond begin to plummet...then a whole bunch of money will have been wrong and a titanic bout of panic buying will run things WAY up. (of course we could go sideways...or we could go up...or we could go down...LOL!!! How's that for "direction analysis"...you beetle you) Doug R