7 replies to this topic

[spielchekr]

The following charts show hypothetical price action for the next 20 days for purposes of discussion only. I'm going to use Teaparty's common settings of MACD 5,34,5 and RSI 9 because, well, he's obviously gone madly bullish with that hideous new avatar. Besides, he's really a good sport and a confirmed bachelor when it comes time to marrying his predictions, so he can take it. As far as traders go, he's as real and good as they come.

I've "flattened" the 20ma for the next 20 days by simply reproducing the prices from the previous 20 days. Notice what that does to the ma slope... it flattens it perfectly. (A straight line, be it flat/upward/downward, tells you one thing: price action in the selected timeframe is recycling). Now if price acceleration in the coming 20 days is simply going to be that perfect analog of the previous 20 days, like this...

...Teaparty might not like the way his momo's are going to shape up as double-top territory is approached...



Now let's say that price drops to the 200ma by Tuesday. That will improve his momo's, right? Wrong! The divergence will surface for as long as price fails to outperform the previous ma period's prices in their remaining and respective date sequences.



So unless a substantial upward deviation in price action occurs from the way it played out during previous period, Teaparty's indicators will be stuck in a rut so to speak for 20 days. In other words, at some point in the coming 20 days, price must accelerate beyond what it did in the previous 20 days in order for divergences in his favorite MACD and RSI settings to be overcome. Otherwise, he must wait for day 21 from now when the effect of Friday's action lowers the bar on the 20-day. Until all of the previous 20 days are dropped from a 20-day indicator, all of the expectations from the last 20 days will be, well, expected.

Now the market already knows what deviations are going to appear in the coming days, just like I've shown, but if it knows something's out there that makes tolerating the deviation worth it, it will do it. Teaparty has far more tools to work with than these two, and what he's seeing in them could indeed be something that will override these divergences should they occur. Whether or not he's aware of this coming setup for these two indicator settings, I personally don't know. But it does make sense to know in advance what your indicators will be telling you in the coming time frame for them. Use that advance-knowledge to help you weigh the evidence of other things you're seeing. Now if Teaparty would only tell us what he's seeing!

So, did this actually make sense to anyone?

[relax]

it makes me think of the drop in february, back then it took around 20 days for damage to be taken care of but i guess we'll have to price action the next 20 days once again we had the move beginning from the all time high level, which makes me think that we need to get back up there, probably on weak momo and macd so think we wil be heading lower tomorrow or tuesday and then get a retest soon after that and then cyclewise i think we'll have to wait a 30-45 days for the next serious move down

[gannman]

hey spiel im a fan of your work i hear what u are saying and it makes sense to me my take is this i think we bottom monday . i want to see the bounce we get if we bounce and then go to new lows we be in big doodoo regards gann

[relax]

why are we in a big doodo look at what happened in late feb/march dow made a lower low and then took off - this game is never as simple and never as complicated as many think

[spielchekr]

I don't want to mislead anyone, so please remember... 1st of all, other MACD indicator settings may not have this divergence potential, the standard 12,26,9 setting for example does not... it will roll under and go positive (but the RSI 14 still does diverge). 2nd of all, here's the essence of what I'm talking about. Price will seek the level it's comfortable with. It has 3 choices in appearing to responding to an indicator and changing the appearance of the indicator: overcome, live with, or succumb to a divergence potential such as my example. All I've done here is simply demonstrate the static nature of indicators that one must be aware of. If price succumbs to a divergence, lower prices get tested and shopped until buyers are found. If it allows the divergence for the full peroid (20 days in my example), something good enough to allow coexistence with the divergence could be just beyond our horizon. Or perhaps, the market is retreating with a guard force at the rear. And overcoming the divergence, well you'd just have to respect that, although it might take something like a parabolic move to overcome the 5,34,5 MACD and the 9 or 14 RSI settings. You should know the success ratio of your MACD settings vs. in other settings and in relation to your other TA tools, know what's in store for them, and act accordingly. That's the whole point of this thread. Most of all, remember that the market can and will use the static nature of indicators to take advantage of the sentiment they will influence. Price is always king.

Edited by spielchekr, 21 October 2007 - 08:51 AM.

[spielchekr]

For the sake of being thorough, here's the "flattened 20ma" chart with standard MACD 12,26,9 and RSI 14. Notice that the 20ma, MACD & RSI will tread water until 11/16/2007 when Friday's long black candle gets replaced by the 11/16/2007 price. There's a darn good chance that the market will want to front-run that event by a few days, even if it's not destined to kick off a major reversal. You know how Mark (OEXCHAOS) says that MACD crossovers are frequently a good fade?

[relax]

very interesting charts! so what are you saying, that we actually find a bottom very soon, go somewhat sideways until 11/16 (maybe a bit earlier), and then head lower

[spielchekr]

I'm saying that that long black candlestick is an opportune point to flip the market off of it's back, actually. Replace the very final "dash" I've got on the chart with a relative higher close, and voila! The "resistance" of those indicators will begin to appear as faltering to the strength of the 11/16 price. A bad day tomorrow will REALLY accentuate it on 11/17.

very interesting charts!

so what are you saying, that we actually find a bottom very soon, go somewhat sideways until 11/16 (maybe a bit earlier), and then head lower