Ok, let's look at my establishment point for these envelopes on the 2002-2003 $SPX chart. These are based on the 20dma. I've removed the 61.8% and 38.2% from most of the following charts (until the end, where they become significant) to improve visual clarity. (Bull market action is "boring and prolonged containment" between those two fib levels). There are a small few other tags to the outermost envelope lines (0% and 100%) to choose from since 1990, but I prefer the 11/06/2002 primary 20ma momentum initiation high since it is most recent. The differences are insignificantly minor, however.
You can see the green/red closing price line tagging the 100% fib line (you can also see that there was a slightly lesser thrust in August 2002 that did not quite tag the 100% fib line). I call that point the primary 20ma momentum foundation high (or 1-MFH). Now look at 06/17/2003. That is virtually an exact tag of the 76.4% fib line. I'll call it the secondary foundation high (2-MFH). It too was preceded by a lesser near-miss thrust on 04/08/2002. So far I've established 100% and 76.4%. At this point, notice my orange ema line at 2-MFH (June 2003). At the moment when 1-MFH occured, that ema virtually flatlined. Also notice that price climbed above that ema at that point and claimed it for the entire bull market into the end of 2007. Remember these features as we go into the next several charts. You'll see how the ema functions well with the fib envelopes.
2002-2003:
Now lets look at 2002 to present and see how this structure worked. Essentially, price has remained between 38.2% and 61.8% (again, those are removed for visual clarity, but I'll be turning those on a few charts down from here). Also notice the very clean support rendered by that special ema which recognized and thereafter complied with the 1-MFH. Clean support until now, that is. We'll get to that momentarily.
2002~2008:
Now let's start looking backwards from the most recent 1-MFH point. During the 2001-2003 bear market, we again see an initial thrust towards the outer envelope line (the 0% or1-MIL, primary 20ma momentum foundation low) in September 2001, followed by an actual tag of that line (a very slight overthrow, actually) in late 2002. That establishes the 0% fib line. Preceding that, there was a tag (a prolonged clinging tag actually) of the 23.6% fib line (2-MFL) in early 2001. Before that, there was the initial 23.6% tag (2-MFL) of October 2000. This establishes 23.6% (2-MFL), so all fib envelopes are now established as relevant. Notice the ema on October 2000... it is flatlining into a rollover there. Price consolidated along that ema and eventually abandoned itself below the line. This helps establish the relevance of the ema to the fib envelopes.
2000~2002:
Let's jump all the way back to to 1990 through 1999 for some more historical perspective. There were tags to both the 23.6% and 76.4% fib lines in 1990, 1991, 1992 and 1998. Other than that, price stayed within the bull market boundaries (38.2% and 76.4%, still not shown, I promise I will eventually). Price did also breach below the ema in 1990. Thus the ema penetration into a tag of 23.6% resulted in a failed rally and significanly lower prices (even though 23.6% was not re-tagged). In 1994, the ema held prices up. It also held prices up in 1998 even though 23.6% got tagged. This further establishes the ema as a legit bull/bear threshold in conjunction with the fib envelopes.
1990~1999:
I'll zoom in on the most recent dip on the previous chart, 1998. This gives a good representation of the S/R characteristics of the ema and the 23.6%/76.4% fib lines. Here you can see a pendulum move from 76.4% to 23.6% July and August of 1998. The ema supports, and prices does a pendulum back to 76.4% in November. The rest was glorious.
1998:
In 2000, things were weaker than 1998. Price consolidated for 2 months at, and finally broke below, the ema before tagging the 23.6% fib line, bounced back to the 20ma flatline area, then clung just the 20ma flatline price range (which was descending). That made the 20ma (and 20ma-related indicators) look OK whilst price plunged in the first weeks of November. A clever and deadly hook. By the way, notice the status of the ema at that point... flatlining and rolling over. Also notice that the break below the ema took price to the 38.6% (I've turned on the 38.2% & 61.8% lines now). Their relevance comes up in the next chart... the current 2008 chart.
2000:
Moving on to 2008. This stacking is even weaker than 2000 was. After consilodating for a mere 6 days at the ema, price breaks below and does a prolonged tag of 23.6% (rather than a single tag of 38.6% like 2002). Returning back to a point equivalent to where I ended the 2000 chart above, price breaks above the 20ma but instead of breaking out above the 50% line (roll point), we are breaking out above only 38.2% now. That's one step lower than 2002. The ema (now rolled over) is next in line for backtesting, just like where I left off on the 2000 chart. This is a similar setup to 2000, only in a weaker state.
2008:
So did price ever break above that ema after where I left off on the 2000 chart? Yes, one final gasp one month later... January 2001, and the adjacent fib level (which was 61.8%) contained the move. And that was all she wrote.
2000-2001:
Now let's look again at the current 2008 chart, but with the 20 day fib envelope tacked onto the right end of the chart. The ema is adjacent to the 50% fib level this time around. Similar predicament to 2000, but at a fib increment lower this time. Weaker market than before, no?
2008 w/extended 20 day fib:
In closing, I'll leave you with this. Take a look at the following par-trend subtrend charts (subtrend means envelopes are calculated from the most recent trend peak point)... 20dma, 50dma, 100dma, 200dma and the 10wma (actually an equivalent to 50dma, with the -161.8% equivalent to 1-MFL) . They all have one thing in common with the 20dma chart I've shown... a price retrace to the par-trend 38.2% range. Kind of spooky, isn't it?
20ma:
50ma:
100ma:
200ma:
10wma:
Disclaimer to newbies and everyone else: this TA technique is entirely my own concept and is not based upon or derived from any conventional or accepted methodology that I'm aware of. Everything I've stated here is an OPINION about the coming market environment based upon this one method, (one that's obviously leaning heavily bearish and in disagreement with several widely accepted and used indicators), and not a recommendation to buy or sell anything whatsoever.
Great and intriguing work. Have spent some time studying the charts and wonder if close - in bands could be left off without effecting the usefulness of the trends?
Will spend more time tomorrow and see if I can grasp the total concept.
Thanks for sharing your work with us.
Best to you, mss
