Focusing on the Five Prior SPX Daily Rallies and the Aftermath
Thu, Apr 28, 5:31 PM ET, by Corey Rosenbloom
As chartists, we have a tendency to over-complicate the simple price chart with a plethora of indicators and overlays.
We’re all guilty of this, and the solution is to take a brief moment to look at a pure price chart of a stock or index (or ETF).
When you do that, you tend to see things that you might otherwise miss.
For example, let’s take a look at five recent multi-day rallies in the S&P 500 and the resulting rally that continued from the strong two or three day rally phase:
As chartist, we tend to look for patterns in the past and then once that pattern forms in real time, try to assess the probabilities of a replay of past behavior onto the current pattern.
In other words, what happened in the past might happen now when a very similar pattern forms – or at least it gives us a framework of what to expect for a possible ‘repeat play.’
I highlighted four similar three-day rally periods in the daily S&P 500 chart that were similar to our present April rally off 1,300.
With the exception of one instance – highlighted red – the market continued to rally after a similar strong impulsive move occurred.
As I highlighted to daily members last week (drawing a similar chart), I noted that given the current three-bar rally to the 1,340 area, if the past outcome of a similar three day rally has led to a continuation move to the upside, it’s a decent assumption to believe that the current three-day impulsive rally from 1,300 will lead to a similar upside rally continuation.
That’s what’s unfolding at the moment.
The purpose of this post is to get you to think in terms of concepts and price behavior (patterns), rather than indicators or complex charting strategies (especially for newer traders).
Sometimes the simplest method beats complex methods, particularly when those methods obscure the simple message sent by price itself.
Corey Rosenbloom, CMT
Afraid to Trade.com
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