In candlestick analysis size matters.
In traditional Japanese Chart Analysis, the long candle is the only one that means continuation, the rest is indecision.
Increasing candle sizes also indicate a wave gaining or losing strength.
Size also matters when setting a Profit Target which is realistic in a given Time Frame.
This takes me to today’s subject of volatility.
Looking a the entire history of the S&P 500, what happened in the previous Bull and Bear Markets? How does one compare to the other, and is it possible to discern a pattern.
METHOD
CONCLUSIONS:
Looking at the funnel chart:
In traditional Japanese Chart Analysis, the long candle is the only one that means continuation, the rest is indecision.
Increasing candle sizes also indicate a wave gaining or losing strength.
Size also matters when setting a Profit Target which is realistic in a given Time Frame.
This takes me to today’s subject of volatility.
Looking a the entire history of the S&P 500, what happened in the previous Bull and Bear Markets? How does one compare to the other, and is it possible to discern a pattern.
METHOD
- The Angle of rise / decline in each wave.
The angles of each wave is shown at the bottom of the chart. The angle of the up-waves is increasing apart from 1, indicating the up-trend on the extreme long time frame, is intact.
- The spread of the channel.
This is the distance between upper- and lower channel line, shown (in part) on the chart. These are increasing, indicating increased strength in the Bull waves.
- Average Daily Range in the subsequent waves.
(@Tradingview is kind enough to let you download the price data, which you can crunch in Excel.)
Within the date range of each wave, an average has been calculated of the absolute of the daily range of each day of the date range. (open – close).
This is an indication of how much the market would move on an average day during a given period, either up or down.
- We see that the Average Daily range in the 1980’s was less that 1 point.
- Today that’s sitting at 31. Beware: As the average of the absolute of daily ranges has been calculated, an up-candle will be >31 and an down-candle will be <31 – in an uptrend, and reversed for a down-wave.
The crashes or sell-offs produce larger daily average ranges, because they’re fast.
CONCLUSIONS:
Looking at the funnel chart:
- The daily average ranges of the up-waves have been increasing since 1970’s, without exception. Dollar value and inflation will play a role, but not for a technical trader. This indicates ever increasing up-waves.
- The daily average ranges of the crashes / sell-offs, remains kind of constant, (Ignoring the Covid Crash – but I am sure (IMO) it was the result of something seriously breaking in the market, possibly the RePo market). Crashes are therefore not getting worse over time.
- In other words, the Stock market is not at the end of its tether. People who predict a crash to Zero are IMO wrong. The price action structure of #SPX is very much intact.
A last note on the fundamentals.
The Eurodollar market for futures is being replace with SOFR. The effects will be like massive vacuum cleaner sucking trillions of USD from across the Atlantic and Pacific back to the US. No doubt these will find their way into stocks.
I am predicting a bumpy ride up to 5,000, until the summer, when EuroDollar Market stops altogether, followed by a massive bull-wave of the likes even George Soros will never see. No pun intended. The repatriated foreign-held dollars will create this. Possbly at price target of 7,500, (not trying to be too wild)