Nov

14

I was watching CNBC over a bowl of cereal a short while ago and Pisani said something along the following lines: “The S&P cash hit 1388 or 1389 again this morning and backed off. This is about the seventh time this has happened.” I don’t generally follow information like this but have seen lengthy List conversations about various indicies at various levels (including “the round”). First, is Pisani’s information accurate (or at least close)? Secondly, is it indicative of anything important? I’ve heard much of “levels of support and resistance” but am not sure that they, or double and triple tops, are significant (it wasn’t that long ago that Dow 11350 was being watched as an area of resistance - obviously it has been overcome).

John Bollinger replies:

I find repeated visits to a level, line, band, etc… useful as ‘logical places’ to take decisions. This is the sort of thing that is hard to ‘count’, but relatively easy to trade. Some of you may know Fred Wynia, it was he that taught me the importance of making decisions at ‘logical places’. I put ‘logical places’ in quotes as it is Fred’s term.

Dr. Phil McDonnell replies:

Pisani is accurate. The previous 6 dates and highs are:

11/13  1387.61
11/8   1388.92
11/8   1388.61
11/7   1388.19
10/27  1388.89
10/26  1389.45

So this morning’s high made the 7th such high in the 1387-1389 range.

Under the category of knowing one’s adversary I would note that there has been a long term up channel which one can draw on a chart over the last few years. The tops of significant rallies appear to be collinear, so drawing a line through them gives an upper limit to the channel for chartists. We hit that line on 10/26 at 1389 (or so) on the SnP.

Note that the line is an up sloping line but it has a much more gradual slope than the recent advance from the June-July lows. I would put this in the same category as round numbers and other such things which cannot possibly work but do. Human beings are superstitious and those who look at charts may sell at such junctions ‘just to be safe’.


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