Friday, April 12, 2002
Breaking down the Andrews & kvetching about the action
A short anatomy of how I use the Andrews. Best to right click
this 60m chart link and open it in a separate window to follow the comments.
Three uses of Andrews here:
-- The Red "conventional" using peaks/troughs as pivots
-- A Green "Schiff" using the midpoint of the prior move, with the peak of the rally as the time start; and
-- A Purple "Gap" Andrews (ie, drawn using a prior gap as a pivot)
Each sheds insight into rally possibilities:
-- All three allow for failure of the move, giving low bounce targets of 1341/1299 (red); 1330 (green/Feb low); 1319 (purple)
-- Resistances on this 60m chart are 1365 & 1419 (purple) and 1390 (Green & Red)
Finally, the daily must be considered: 1335/1411 fib supt/resist.
In summary, the odds continue to stack in favor of high volatility consolidation between 1299 and 1399 (or 1350 +/- 50).
For the following comments, open up
this particular Daily chart.
I find the Accumulation/Distribution line interesting here. Notice that it is at about the same levels as just before 911. Notice too how flat that line was during the April 2001 rally distribution phase, despite the very noticeable price declines. Today, the A/D shows more decline for proportionally smaller price decline. For a "Spring 2002 Rally" to materialize, the A/D needs once again to breach its now declining MA. There is some support for such a "rally up" view as RSI for this lower low is slightly higher. However, IMO only an optimist would believe to be a "double bottom" situation. See the
working Daily chart for what IMO are reasons a rally will in the end be thwarted near the 1411 level. Nevertheless, it does open the door for some gains, as moderated by the less bullish action on the weekly chart.
In summary, trading long is still going against the dominant flow, which is down, until a clear reversal is evident (heh heh, by which time it will have run its course!)
The reality is that index trading has been quite crazy making for position traders. Even with a "perfect" short entry at 1710, profits have declined by 50% numerous times, no doubt shaking a few hands off the tree. And while offering new "add-to" or fresh entry points, holding a position has demand tolerance to extremely wide stops (and deep pocket drawdowns) or simply standing aside.
Similarly, scalping regulary generates high commish/slippage costs, particulary as moves have been consolidative (ie, triangles), with high volatility swings in both directions, stopping out long and short positions before the breaks materialize. Base hits and sitting on your hands has been the norm. Doable, but demanding of patience and discipline so as to preserve captial, what to say of perspective!
In short, quite a bit of effort for hard fought returns. Perhaps later this weekend (as a break from doing taxes), I'll consider some reasons "why", although I continue to find most "reasons" to shed little light on just what to do, short of playing the rotation game via either direct stock picking or judicious ETF rotations, both of which also require study, effort, discipline, and patience.
No doubt in my mind, there is more of the same for all traders in the months to come.
Labels: bisects-forks-medianlines
