I previously mentioned the Mon/Tues candles were interesting and similar to Dec 16, Jan 16 and Jul 8 which all rallied hard 4-8 days. However, I decided to revisit that back to year 2007 using the following criteria:
1. SPX is in a multi-day large drop that has not yet corrected. In other words, a lot of people are trapped above and haven't even seen a 38%+ retracement yet to get out.
2. The first candle in the sequence is a down day with a sizable bottom tail/wick
3. The second candle in the sequence is a down day that closes near the low of the previous day and near or a little below the low of the previous day.
I found 6 solid cases and 2 stretches and did my best to stay unbiased. They all have slight differences with Mon/Tues this week, but I believe they meet the criteria above like Mon/Tues. Criteria #1 eliminated all 3 examples I gave previously, and I think that explains why those cases bounced hard for 4-8 days.
Here are the 8 cases and what happened next.
1. Fri Mar 3, 2007: Down 1 day lower low (-1d LL), Up 3+ days pts below previous pivot and 13SMA (+3+d), -2+d LL
2. Fri Jul 27, 2007: +1+d pts below previous pivot, -1d LL
3. Fri Nov 9, 2007: -1d LL, +1+d big 10pts above previous pivot & 200SMA and just below 13SMA, -8d LL
4. Mon Mar 10, 2008: +1+d 10pts below previous pivot but at 13SMA, -1+d LL
5. Mon Feb 23, 2009: +1+d pts above previous pivot but below 13SMA, -8d LL
6. Fri Jan 29, 2010: +2d pts above previous pivot but a little below the 13SMA, -2+d LL
*7. Fri May 7, 2010: +3+d pts below previous pivot and 50SMA piercing 13SMA, -9d LL (this example is perhaps the weakest since criteria 3 is stretched with the 2nd day not closing very close to the low but it seems relevant as the flash crash)
*8. Dec 10, 2014: +1d not even a full day pts below previous pivot and 13SMA/20SMA, -3d LL (This one had a down day for day 1 which qualifies but it closed higher than it opened and retraced more than 38% on that day)
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Did you notice the patterns?
1. All 8 led to lower lows 2+ days later
2. All 8 rallied within 1 day and usually immediately: 4 for 1+ days, 2 for 2+ days and 2 for 3+ days
3. All 8 rallied near their previous pivot or candle high: 5 just below it, 3 just above it
4. 7 of 8 rallied near a key moving average (13SMA, 20SMA, 50SMA, 200SMA): 5 slightly below, 1 at, 2 slightly above, none above all key MAs
5. Once the rally ended, 5 of 8 fell 1-3 days while 3 of 8 fell 8-9 days but typically not that much further than the first low
Did today follow the pattern expected? Big up day slightly below the previous pivot of 1954. So far so good. Only 1 of 8 cases rallied for less than 1 day but half only lasted part of the 2nd day. So, the odds favor that Thursday (or potentially Fri/Mon) will be another top near the 1954 pivot. And, the odds also favor the subsequent fall will only last 1-2 days but possibly 8-9 days. My previous projection was 1953-1969 with a potential ugly move lower Thu/Fri. This research backs that up but it also support a low of SPX 1828ish (or the 1814-1847 Fib range) versus the 1700ish low which will probably have to wait until October.
In summary, 8 similar candle formations in a similar situation since year 2007 support a projection for a high near 1954 on Thursday +/- followed by a drop to 1828ish by Fri/Mon +/-. Good fortune.
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