Union Carbide
Returning
to Union Carbide, I ask you - the jury - to disregard the dip to the S3 level
occurring at a cumulative volume of about
2.6. (This was a one- day affair at the climax of a 6-day 300 point drop
in the Dow in late March/ early April of 1994). With this point thus ignored, it is seen that
TOPFINDER - while explicitly fitted to point "F" - simultaneously
does a good job of accommodating all of
the pullbacks from the start of the move through the dip to 31 at a cumulative
volume of about 3.3. (The subsequent
penetrations of the TOPFINDER curve as the burnout point is approached are of
no consequence and a frequent
occurrence for reasons which will become clear when we exhibit the
algorithm in a later article). In this sense TOPFINDER may
truly be
regarded as the guide curve for the entire price-doubling bull move.
A second
example - perhaps more striking in that no appeal to forbearance is required -
is afforded by Borden Chemical and
Plastics (BCU) in the second figure. Here the TOPFINDER/BOTTOMFINDER
symmetry is explicitly exhibited. On the way up, TOPFINDER T3 accurately locates the top of the accelerated near-
doubling move connected with the launch of S3, when fitted to the first consolidation pattern. The
subsequent decline from the (triple) peak carries back to S3 as expected, and
even beyond to S2.
Later,
after another rally to the area of the previous peak, BCU undergoes a
precipitous decline which is well described by the BOTTOMFINDER curve B1, launched in conjunction with the primary
resistance level R1. Again, when B1 is fitted to the first pullback, the cumulative volume at which the
bottom occurs is accurately predicted. The subsequent pullback to R1 also
exactly follows the script.
It should
be emphasized that applications of TOPFINDER (and BOTTOMFINDER) are relatively
infrequent, yet quite striking when
they do appear. Generally speaking, whenever a bounce accelerates to new highs
before pulling back fully to the expected
(i.e. newly launched) S/R level, one should launch a TOPFINDER, fitting
it (provisionally) to the pull-back point. If the move continues to trend strongly without pullback
to the S/R level, continue the TOPFINDER, perhaps iteratively readjusting the
fitting point as the move matures
towards the expected burnout cumulative volume.
Further
examples of this remarkable new feature of price behavior will be given in the
article to follow, after whiich we will present the underlying algorithm and
speculations as to its basis.
POSTSCRIPT:
In
article#10, we gave a formula for introducing S/R's as custom indicators in
WIndows on Wall Street. From readers' comments it is clear that I should have emphasized that DAYS is a constant
set by the user to coincide with the launch point, being actually the number of records from the beginning of the
data file. One reader, Stacie Crummie, discovered that with the following
slight modification (to avoid division
by zero problems prior to launch) , this formula can be used in the more
popular Metastock software:
cum(if(cum(1) < "days",0,mp()*v))/cum(if(cum(1)=1,1,if(cum(1) < "days",0,v)))
Here mp()
is the mean price function, replacing our .5*(high+low). Thanks Stacie.
Category: Methods of technical analysis
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