By the middle of August, the SPY had reached the $137 level, which was just above the predicted support at $135.06. This area is highlighted by a circle (point 3). The market turned around sharply as many hoped that the bull market was not over. For the third quarter, the projected resistance was at $162.08, point 4. Of course, the SPY made its all-time high in October at $157.52.
One of nuances that John pointed out to me is that he looks for the change in a trend of higher and higher projected resistance levels to suggest a market is topping. By the 1st quarter of 2008 the projected resistance (point 5) had dropped to around $156, far below the third quarter high of $162.08.
John has also developed his own momentum system to complement his pivot point analysis, which he sells as an indicator package for many popular software systems. He was kind enough to provide a chart of the euro futures with the buy signals represented by the blue dots and the pink dots representing sell signals. I will leave it to the reader to examine the signals from his system and draw his own conclusions. (Of course I receive nothing from any sales he may or may not make).
I feel that in order for one to have the confidence to use any technical tool or method, one must do enough work on one’s own to become convinced. I had suggested the euro futures since it is an important world market, and I knew from the Commodity Traders Almanac, which is co-edited by John, that it has shown a very consistent seasonal pattern in early January.
As they discuss on page 16 of the book, “selling the euro on the third trading day of the New Year and holding for 24 trading days was profitable 11 out of 13years.” I asked John how he might incorporate his quarterly pivot analysis into this seasonal pattern.
By using the data for this quarter up through Wednesday December 12, I calculated the quarterly pivots for the 1st quarter of 2013, which are:
In the Almanac, the euro’s strong tendency to rally for the last two months of the year is also discussed. Given the current quarterly data, John said he would be looking for a rally up towards the 1.3257 level, with a first target of 1.2775. As for a stop, he would typically use one above his monthly predicted resistance level.
Regular readers will know that while the seasonal statistics and tendencies sound good, I always need to see clear technical signals that a market is topping or bottoming out before a trade is taken.
I think these examples will convince you that the quarterly pivot levels can be a powerful tool, and I would suggest combining them with monthly levels. It is quite easy to set up the formulas in Excel for the markets you are watching until these levels are more widely available.
I find that when the pivot levels coincide with the starc band and/or Fibonacci levels, it can give you a great degree of confidence in the level of support or resistance. Of course, one must also look at the volume and relative performance analysis.