Sunday, March 7, 2010
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Strong
As mentioned previously, in a strong bullish swing the Climax High sell signals might go down for just a day or two, or sometimes just for an hour or two.
We see this especially in a constructive basing pattern, as a stock or market index forms a "handle". Sell signals tend to occur as the price reverses downward off previous highs or pivot points. But there's no follow-through to the downside. An upward break is imminent.
This appears to be what's going on now. We can take a breakout above the high of the Climax High signal as a contrarian buy signal.
We see this especially in a constructive basing pattern, as a stock or market index forms a "handle". Sell signals tend to occur as the price reverses downward off previous highs or pivot points. But there's no follow-through to the downside. An upward break is imminent.
This appears to be what's going on now. We can take a breakout above the high of the Climax High signal as a contrarian buy signal.
Wednesday, March 3, 2010
And now come the sell signals
There was another pulse of Climax High sell signals today. The chart below of RRY (Rydex 2X Russell 2000 ETF) is illustrative.
The daily numbers of Climax Highs and Lows are shown as indicators in the top 2 windows, in red and blue. They shift back and forth in waves, anticipating the price. Note for example the wave of Climax Highs in late December and January that proceeded the price decline. Then, about halfway down, a wave of Climax Low buy signals started kicking in.
The Climax Highs have been kicking in again recently, especially today with many of the broad-market ETFs showing signals (the chart below of RRY for example). The market will probably go down for a few days. But keep in mind that these signals can be extremely short-term in a bull market, as there will be numerous bouts of distribution (large-scale selling) on the way up. Climax Highs signals also tend to occur in a handle formation as it consolidates to a near-breakout. As noted in the previous post, RSU is currently forming an apparent handle in a cup-and-handle pattern (which is a bullish setup). For that matter, the chart of RRY shows a similar cup and handle except it's acting a bit stronger, having moved up out of the handle a couple days ago.
The daily numbers of Climax Highs and Lows are shown as indicators in the top 2 windows, in red and blue. They shift back and forth in waves, anticipating the price. Note for example the wave of Climax Highs in late December and January that proceeded the price decline. Then, about halfway down, a wave of Climax Low buy signals started kicking in.
The Climax Highs have been kicking in again recently, especially today with many of the broad-market ETFs showing signals (the chart below of RRY for example). The market will probably go down for a few days. But keep in mind that these signals can be extremely short-term in a bull market, as there will be numerous bouts of distribution (large-scale selling) on the way up. Climax Highs signals also tend to occur in a handle formation as it consolidates to a near-breakout. As noted in the previous post, RSU is currently forming an apparent handle in a cup-and-handle pattern (which is a bullish setup). For that matter, the chart of RRY shows a similar cup and handle except it's acting a bit stronger, having moved up out of the handle a couple days ago.
Saturday, February 27, 2010
Buy signals in a Handle (nice)
What's all this about the magic cup-and-handle pattern? People insist it's totally subjective, but I don't think so. I drew it in on the chart below. The trick is not to talk yourself into something that isn't really there. It has to have all the right features, particularly in the handle and along the lows of the cup. For example, we like to see a flat section along the bottom of the cup with the volume drying out and "triangling" down, and also the handle should be relatively flat and shallow, drifting downward as opposed to wedging upward. The quiet and triangling-down volume is important here too.
A good cup-and-handle pattern will be self-replicating. The chart below of the Rydex 2x SP-500 ETF is a perfect example; you can a miniature cup-and-handle which forms the bottom of the main cup.
A good pattern also tends to generate some killer buy signals along the lows of the cup, or in this case along the lows of the handle. It was a Climax Low buy signal (shown in blue).
A good cup-and-handle pattern will be self-replicating. The chart below of the Rydex 2x SP-500 ETF is a perfect example; you can a miniature cup-and-handle which forms the bottom of the main cup.
A good pattern also tends to generate some killer buy signals along the lows of the cup, or in this case along the lows of the handle. It was a Climax Low buy signal (shown in blue).
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