The Nasdaq Composite (COMPQ) made a new high today on higher volume than yesterday. A second follow through day increases the odds that this move has legs. But I continue to fall back on waiting until beyond the 11th day to determine if this move is only a bounce or a trend change.
The SP500 Index continues up on higher volume and looks good at this point.
Chart courtesy of Stockchart.com
Andy – What is the origin of this 11 day rule ?
I am not quite convinced with the logic here. What if i said if we rally for 30 days then its a good market. Of course its a good market because we rallied for 30 days. Doh !
Same way, you are saying that this market has legs if it stays up for 11 days. Well, … sure..
TK – 11ish is 1/ 8 of 90. It is something Gann found decades ago. A counter-trend rally will not go beyond 11 days (as a rule). A new high after the 11th day will most like take the move at least 30 days. One always has to watch the count on the thrust and corrections within the trend to determine when the trend is weakening and when it has changed. At this point the trend remains down. That does not mean good traders are not long now. It just means they should have itchier trigger fingers…
Gotcha.
Thanks for the explanation.
Andy, am I correct in positioning the start on the 15th of July? i.e. would this place us today on day 9/10 from the ‘bottom’ (so, either tomorrow or Monday would be important to find out where we are, and where we are going) ….
looking at this chart:
http://stockcharts.com/h-sc/ui?s=$COMPQ&p=D&yr=1&mn=0&dy=0&id=p84533497578
it certainly looks like a head and shoulder (or very symmetric going from the march bottom to the May top, just that we missed the first shoulder…. (the april may correction: maybe that needs to come now, and then drift back into october?)…. or could this be it?
Kurt – the low was on the 15th. The 16th was day one of the move up. Days 9… 10… 11… whatever happens doesn’t matter as long as the low is not taken out. A strong market will have only one to three day corrections. Any lower close beyond the third day is not good. There are just rules of thumb. Can the market rally after 4-5 down days… sure. But statistically it should not.
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H-S work when then actually work. Many setups for a H-S don’t actually play out. But if one does play out then H-S rules of thumb tend to work.