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Monday, August 20, 2007

What in the world is this?

I have diagrammed out a broadening formation which is taught by a famous trader by the name of Kevin Haggerty. The rules as to how these points are derived is proprietary to him, but not necessary for this discussion. The basic concept is that once these form at key points, often large market moves happen.

There was also one at the high, just for the record, which did predict this downward move. This one happens to be occuring in the zone of the 200 day moving average, which is a widely watched level by institutions. I for one have not found it significant in my studies, but many other very good traders swear by it. Please also notice that the commercials have increased their long positions over the prior week. When you combine these two things, this is a pretty good buy signal. I realize I will get booed out of town for saying anything other than the world is ending, but this is how I see it.

Whether or not we have another huge downdraft or not nobody can know, but the fundamentals are in place for a bounce from here. If you combine this with what was in my last post with the Vix, there is a reasonable basis for an upward move. If it happens, I will be watching my model closely to see if the commercials jump off the ship. If they do, I will jump with them.

2 comments:

superfly19 said...

Can you describe the formation you're referring to a little more? Are you referring to the very high volume reversal day we had last Thursday, or the shape of the bar it generated (or something else?)

Chris Johnston said...

This pattern by the numbers if you look at them resembles a megaphone. It is broadening pivot points, that have certain rules that apply. Those rules are proprietary to someone else, so I cannot reveal them. However, the pattern as it is marked is valid.

I DO NOT trade this pattern, although in the old days I did, and mostly on 5 minute charts. I caught some very nice sharp moves with it, but only had about a 50% win/loss ratio, which is just too low for my taste. This is why I call it a noisy pattern, it is only right about half the time, but the moves are typically large when it is accurate.

Volume has nothing to do with it, and volume is of no value at all in determining market movement by my studies. It is thrown out there constantly as a reason why things have or will happen, and volume is no better than a coin flip for determining near term market movement.