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IT trend reversal threshold


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#1 spielchekr

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Posted 10 October 2009 - 09:22 PM

I'm starting with a chart relative to last Friday's close. But rather than looking backwards with Friday closes here, I'm looking forward with Monday closes on the three charts thereafter. You'll possibly figure out why I'm doing this as you read on.

The first chart plots all exponential moving average values between 1 and 200, left to right on the x-axis, as of Friday's close (10/09/2009). The chart includes a "best fit" straight trendline for the curve, and the R2 value (closeness of curve fit) for the closing price. Back in late February/early March, this R2 value was at 0.99+... it descended to zero as price rose through its transition period and then climbed steadily upward again as price continued climbing. Currently at 0.8777, R2 is at its highest point since the spring reversal and has never reversed.

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The next three charts plot an x-axis price range between 1000 and 1100, and a y-axis R2 range between 0.7900 and 0.8900. These x & y ranges are zoomed ranges that are relevant to current prices and R2's. In a nutshell, these charts show a price curve where the maximum R2 (trend fit) can be obtained, and show where actual closing price is located relative to the "peak trend capacity" for a given moment. The further away price is from the curve peak, the more it is deviating from the trend, either upward (right of the curve peak) or downward (left of the curve peak).

The three charts are plotted respectively for Monday 09/28, Monday 10/05 and the coming Monday 10/12. Don't get confused on how I can plot next Monday vs. the R2... all I have to do is enter each of the x-axis prices shown into the Monday time frame chart to plot and see the resulting curve that's upcoming.

Two important things to recognize here:

The curve peak rose from 0.8350 to 0.8675 for the week between 09/28 to 10/05. but slowed significantly for the week between 10/05 to (coming Monday) 10/12, from 0.8675 to 0.8875:
1- {(0.8875-0.8675) / (0.8675-0.8350)} = 38.5% drop in R2 acceleration, a rather interesting number for Fibonacci followers.

And, the price range for the R2 curve peak is now moving backwards.
09/28 price range for peak R2 = 1031 through 1036 (forward from 9/21)
10/05 price range for peak R2 = 1043 through 1048 (forward from 9/28)
10/12 price range for peak R2 = 1038 through 1043 (backwards from 10/05)

(For reference but not shown because it runs below and off my selected chart scale: chart for 09/21 price range for peak R2... the range was 1014 through 1017, peak R2 was 0.7960, demonstrating that there's been a progressive uptrend to this point. With a price location of 1064.66 on the curve, it was quite an upward deviation at that point in time).

Peak zones mentioned above are enclosed within the red vertical lines.

Monday 09/28, with closing price and its R2 indicated:
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Monday 10/05, with closing price and its R2 indicated:
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Monday 10/12 (I've leadered Friday's close and R2 levels on the curve for the sake of having some reference points for this curve for Monday). See the R2 curve's peak zone moving backwards on this chart?:
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A third thing to recognize is how higher prices plowed into the right-side of the curve deviation from the curve's peak, and doing so under a condition of a broad trend deceleration to a Fib threshold for Monday.

My take: there's nothing more devious than kicking off a new negative IT trend reversal with counter-trend higher prices.

Disclosure: I'm fully short for a position trade as of Friday's close. And my hamster is back (re-introduced last week and a bit early but by personal request and favor ;) ) for an encore presentation.

#2 nimblebear

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Posted 10 October 2009 - 10:27 PM

Awesome diagnosis. :clap: How you came up with it is beyond me, but it is interesting nonetheless. :yes: I hope you are right, too.
OTIS.

#3 milbank

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Posted 10 October 2009 - 10:40 PM

And my hamster is back (re-introduced last week and a bit early but by personal request and favor wink. gif ) for an encore presentation.


And not without appreciation by the requester of the favor. :lol:
As well as, and most importantly, all the TA you share with the board. ;)

Edited by milbank, 10 October 2009 - 10:45 PM.

"The power of accurate observation is commonly called cynicism by those who have not got it."
--George Bernard Shaw


"None are so hopelessly enslaved as those who falsely believe they are free."
--Johann Wolfgang von Goethe


#4 Rogerdodger

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Posted 10 October 2009 - 11:07 PM

Milbank wanted the hamster? That figures.

#5 milbank

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Posted 10 October 2009 - 11:36 PM

Milbank wanted the hamster? That figures.


I Love the hamster!
A few belts in me and I can watch him for hours.

"The power of accurate observation is commonly called cynicism by those who have not got it."
--George Bernard Shaw


"None are so hopelessly enslaved as those who falsely believe they are free."
--Johann Wolfgang von Goethe


#6 porsche911sg

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Posted 11 October 2009 - 08:21 AM

I'll be short by tom.
The market catches almost everyone on the wrong side. We always seem to get fake break out before that huge dump or the hugh dump before the false break down! Trade Safe!

#7 spielchekr

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Posted 12 October 2009 - 06:04 AM

The price for reversing the R2 today (making it recede from Friday's 0.8777 reading) is 1077.8. R2 has steadily climbed each and every day since late February. I see appraoching 1077.8 as the border into irrational exhuberance, and a good place to cover if it moves beyond. But I'm well aware that Ben and Tim are men without borders. Since the future "can't be predicted", it's a simple task for them to justify pulling forward everything from it to make the present more predictable, isn't that right? Per futures this AM, looks like my trade will get squashed. <_<

Edited by spielchekr, 12 October 2009 - 06:05 AM.


#8 spielchekr

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Posted 12 October 2009 - 09:20 PM

Trade not squashed. 1077.8 held reasonably well into the close.

Here's tomorrow's curve. The curve's crest is barely growing higher now. Higher price still stubbornly deviates from the trend optimum (price range at the curve's crest). The crest zone itself (vertical red line zone) did not move back to the right (into higher prices). Until price breaks, the reference "pie slice" gets more and more narrow.

>=1082 would be an attempt to take prices higher while reversing R2. as was trying to take out 1077.8 was today. A few weeks ago, the curve's crest was climbing at a rate of more than 0.035 per day. Today it was about 0.0014. That's 4% of the power seen a few weeks ago. When the curve was climbing like that, price forays could be taken much further down the right side of this curve (into much higher prices) without reversing the R2 trend. An R2 reversal is now stationed only a few points higher due to the loss of momentum (the curve is not growing higher like it was). It's very doubtful we will take prices into the diminishing R2 zone (at best, only momentarily like we did today when price broke 1077.8). There is very little "headroom" now for bull raids.

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