#1 Tue, Jun 14, 2011 - 8:49pm
It is useful to look at the long term view from time to time to maintain perspective, and the weekly chart is a good place to get that view. What really stands out is the perfect trend channel established and maintained since the bottom was formed in 2008. All corrections have been on the order of 10% or so and have followed periods where RSI generally achieved very over-bought conditions with readings as high as 80. The corrections when they do occur never reach the 45 week moving average, instead they find support nearer to the 18 day MA (dotted gray). RSI during the corrections finds support at the 50 level and MACD at the 20 level. Only once has the bottom Bollinger band been touched during a correction. Never have the previous swing lows been taken out, and only once was the previous high violated to the downside, and just barely when it did. Stochastic either just breached 50 then reversed or momentarily kissed 20 before reversing. It never embedded below 20 or remained below 50 for any appreciable amount of time.
So where are we now? RSI is already at 66 and declining and assuming 50 will be the floor again, we are halfway there from a high of 80. Previous swing high resistance that has turned to support is at 1425, we expect this level to hold during a correction. Look where the bottom line of the trend channel is and where it meets that price level in the future. Can you see price correcting to that point and would it create a similar path to what we have seen so far in this 3 year trend?
The 18 week MA is still climbing and will level off during a continued correction. Notice the 18 week MA has never rolled over and declined. Now picture the slope declining but never going negative. That effectively puts a floor under the current 18 week MA at 1467, and likely higher because it is still climbing at a steep slope. The previous major swing low is 1310 and I do not expect that to even be approached. The bottom Bollinger band is above that level and is currently at 1351, but it also is still climbing rapidly toward the 45 week moving average (blue). That 45 week MA has never been touched during a correction and is currently at 1384. Considering all of the above, I believe the somewhere near the previous swing high of 1425 will be where any real correction ends and reverses higher to a new swing high. This would amount to approximately a 10% correction from the all time high.
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Edited by: matrixsentry on Nov 8, 2014 - 5:31am