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On Mar 4, 11:28am, Tom Alexander wrote:
> Joe brings out a very important point; 15% moves in the NDX are quite
> common. It is very useful for those who trade the stock index futures to be
> aware of the typical swing percentages in the NDX and S&P. I ran a 5% swing
> file study on the NDX cash from the September top to Friday's low . The
> results are as follows:
>
> Total number of swings 5% or greater: 49
> Number of swings 5%-10%: 20
> Number of swings 10%-15%: 17
> Number of swings 15%-20%: 11
> Number of swings 20% +: 1
>
> This period has experienced a relentless downtrend but there have been
> significant countertrend moves along the way. Of the twelve moves 15% or
> greater, five of them were up.
I agree that the upside target that I stated of 15% over the next
month is small, when taking into consideration the inherent volatility
of the NDX. Allow me to clarify.
The attached chart shows daily lows only. In this context, a move
up is considered to be low-to-low. With NDX average true daily range
in the 5% to 6.5% range, that leaves another full 5% of possible
gain not accounted for in the projection.
The middle trend line shown reflects about a -4.7% per month
rate of decline from the March top. Therefore, if the trend holds,
any rally that takes about month will implicitly give up about -5%.
Likewise, a 3 month move will give up -15% (as long as the donwtrend
stays in place).
The middle (green) trend line is about 22% above the lower band
(the dark blue line), and the upper band (the light blue line)
is 22% above the trend line. The upper band is about 49% above
the lower band line.
Looking at two scenarios:
1) a rally from the lower band to slightly above the trendline,
similar to the recent rally that began in January, and lasted
about a month: this would be a 22% move minus 5% for the
passage of time: or about 17%. This could be as high as 25%,
depenindhg upon how far and fast the rally exceeds the trendline.
(I said 15% ... I was being conservative).
2) a rally that extends all the way from the low band to the upper
band, over the course of three months. This would be similar to
the late May-to-early-Sept. rally. In this scenario, we might
expect a 49% minus 15% move, account for the passage of tiem,
or about a +34% target (In my note, I mentioned a 30% target).
Worth noting, is that a 35% rally from this level, over the next
three months, is still consistent with the downtrend established
in March 2000.
Right now, NDX is at a critical point. A rally failure from
here may establish a new multi-month decline, similar to the
one that began Sept. 2000. A break of support here could take
NDX fairly quickly to the sub-1500 level (about 50% of the recent
January high would be around 1250).
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