The Dow: Projecting the Probable Path of Price (Part 1)
12/15/2008 9:56 am EST
I have been doing a series of projections of the price of the Dow for MoneyShow.com in interviews since the Las Vegas Traders Expo in November of 2007. It's fascinating to look back and see how the projections worked out, and we did that in an earlier article. Given the ongoing volatility and uncertainty in the markets, and with the Presidential inauguration coming up in the third week of January, I thought it would be interesting to look forward in an article.
I am a professional trader, money manager, and mentor, not a soothsayer, but because I do keep a large library of my own hand-drawn charts, I do find myself wondering "What if" when I draw my charts each night. Let's take a look at a longer-term chart of the Dow, current through mid-day on December 11, 2008:
The blue up-sloping lines on the chart above were added in late November, right after price broke below the prior lows at 7800 with a wide range day lower (750 points), immediately followed by a wide range day higher that was nearly as large! When price rallied that hard, that fast "out of the hole," I wondered, "What if the two wide range bars were an important low?" The blue up-sloping lines are a Median Line and its Parallel Lines, and they should show the probable path of price-until price runs into other 'tested' lines-in this case, the red and green down-sloping Median Lines and their Parallel Lines.
Note that I also added six circles, where an up-sloping line crosses a down-sloping line. These are Energy Points, a technical analysis tool of my own invention. My research has shown that Energy Points, where two lines of opposing force meet, do two important things:
- Energy Points act as price attractors. Price is drawn to Energy Points much like moths are attracted by a flame.
- Energy Points are high probability areas for either a change in trend or an acceleration of trend. Price seldom congests around Energy Points. Instead, wide range bars are generally spawned once price enters an Energy Point area.
More tomorrow in Part 2.