Welcome Max Whitmore – What Is the Super Chart Saying Lately?

Posted @ 9:32 am - Filed under Capital Growth, Economy, Max Whitmore

CURRENT SUPER CHART SIGNAL – 7-25-09 BUY (UP TO 50% OF CASH)

Forward by Bawldguy:
For those of you that have kept up with me, one way or another, the past few months, you are aware of the Super Chart BUY signal I issued on July 25th as the “UP” head and shoulders formation broke above its neckline (See the chart below). For those of you that are just coming back on stream via The BawldGuy website – first a very warm welcome to you all – this BUY signal will come as fresh news. However, importantly for both of your camps, as of the close last Friday (Oct. 2) we are fast approaching a very, very critical point in the development of this formation that began to unfold last October 2008.

And now the first post from Max Whitmore:

This critical point is called the “pullback” phase or “test” of the formation. I am inserting the current S&P Cash Index Super Chart (as of October 2 close) and will explain why this is a very crucial point and what the pullback may be telling us.

First, a quick summary of the formation to date. In August 2008, I warned my readers that we were heading for the DOW INDUSTRIALS 8,000 and the S&P 900 level soon. It turned out that the big break came about a month later in September and early October. The decline continued until December 31, with the 900 area of the S&P finishing what is called the “left Shoulder” area of the “inverted” (or up move) head and shoulders formation.

Then, prices dropped to a multi-year low in March of this year at 683 (March 6th). This low point of the whole formation is called the “head” area and has an importance I will remark upon in a moment. From this low, we roared up to a high of 946 (June 12th) and backed off a bit until July 10, when we resumed the last up move upwards.

Then, on July 24th, the all important “breakout” of the formation occurred. This is when the close of the S&P actually closed ABOVE the “neckline. (see chart)” This neckline was formed by drawing a nearly horizontal line from the high on October 30, 2008 in the “left shoulder” area and the high on June 12th of this year in the “right shoulder” area. Breaking this line to the upside is a clear signal, typically good 75-80% of the time, that a huge rally is about to get underway. That breakout occurred at S&P 950.

Now, this rally has an unusual characteristic – you can predict with an accuracy rate of over 80% where the high of the coming rally will finally be. You simply measure the distance from the neckline DOWN to the lowest low of the formation (remember I told you the low was important) and add this total point value to the price where the neckline was broken to the upside. In this instance, the distance is from the S&P 680 low to the 950 high or a total of 270 points. Added to the neckline breakout point at 950 (see the red square on the chart), the total is 1220. That is our ultimate rally goal

But, I have said, we have entered a very, very critical point forming in this overall formation. The “pullback” phase is when the rally takes a breather – or what we all hope is a breather – and pulls back down toward the neckline.

Now, there is an additional critical component of this pullback. It is called the “headline.” On the chart you can see that the lowest point of the formation (the bottom of the head) and the lowest point of the right shoulder area form this headline (in dark blue). The headline is the major first line of resistance to this pullback. It is important to hold above this line on a Friday night weekly close. Remember, this is a weekly chart, so all that counts for the chart is the close each Friday at 4pm. Closing below the headline will not be a good sign. If we hold above it, all well and good. But, a close below may call for some change in our current signal status.

But, not to get ahead of ourselves. For now, we have closed above it. What might happen this coming week? Well, there is a clue on the chart that might help. I call your attention to the lower part of the chart. This is what is called the “momentum” portion of the chart.

I will keep it simple here. Note the two green circles. I call your attention to the first circle (number 1). In July, what is important is that the green line (called the “fast” line) dropped to nearly the 20 level (the momentum scale is 0-100). Note, however, the black line (called the “slow” line) was still at the 80-90 area. Chartist call this a momentum “divergence.” The high slow mover shows strength still present for the major part of the longer term part of up move. The fast line only measures the near term momentum and is saying the near term down move momentum is slowing. About 85% of the time this “configuration” means the rally is about to resume. Note that is exactly what happened.

Now, look at the second circle (number 2) that is just now forming. The lower “fast” line is already near 50, almost in the lower part of the chart. The black line, however, remains quite high. The Super Chart, at the moment, says odds are we will resume the rally soon. Can such a “setup” fail? Of course, but we should have time to know that and protect ourselves. For now, the likelihood is a resumption of the rally.

Your move? Be a buyer of stocks you like that are at good price this week. If the setup fails, losses on these should be minimal. If it doesn’t fail, you will be a winner as we resume the rally. So, a good, relatively low risk place to enter is upon us, regardless of how the test resolves. And what of all the bearish predictions out there? Well, until the chart tells us that it is strong enough to break down the current formation, we “hold’em.”

Side note. Look at the three red circles on the momentum section that I put in May 2008, August 2008 and January 2009. All were the exact OPPOSITE setup from the current momentum setup. Those times the high green fast line and low black slow line meant a decline was about to occur. And each time it did. In fact, the August one was the one that caused me to predict the huge drop in the Dow and S&P coming.

From my 8-26-08 Report, word for word –

“What I see beginning to develop is another “down head and shoulders” formation on the S&P that, if it did go to its full conclusion, could take us to the S&P 900 level (we are at the 1,260 area this week) and possibly to the Dow Industrials 7,800 to 8,000 area (we are at the 11,400 area right now).”

Final comment on the current S&P Super Chart. We pulled up to, but did NOT cross up, the thick red Super Chart Keyline. Above the Keyline for 5 weeks and we get a “full-fledged” BUY signal. The last breakout up of the head and shoulders, which occurred below the Keyline (an important event, but not a vital Keyline cross up), was important enough to call for only a 50% of cash investment. When and if we do finally cross above the Keyline, it will be the signal for a 100% of cash invested position.

But, we are NOT there yet. I call your attention to the April 2008 pullback up to the Keyline. After crossing down the Keyline, we pulled back to it. THEN WE FAILED! This should keep us very alert. While the head and shoulders is a vital formation, we still need to cross up the Keyline for a full BUY signal. So, I will be watching closely. We do need to cross up that Keyline!

Now, be assured that if any mid-week comment is needed about possible position changes, I will post it at once on our Bawldguy website or the new site being constructed as we speak, as they say. Be advised, however, that once our Report is in subscription, subscribers will be sent an Alert directly to their computers mailbox for their use at once. At that point, there will be no need to be constantly checking the website.

Once again, my perennial comment – this charting business is a percentage business. I expect that the prediction I just made has an 85% likelihood of fulfilling. But, a 15% possibility still says it could fail. Good part is that if it does, as I said earlier, the chart will typically give us warning enough to protect portfolio positions.

Well, almost done for this week. But, before I go, let me add a second chart I think you might find interesting. Won’t be doing this every week, but this one is most interesting.

Most of you know that the Super Chart works very well on the S&P index. But, only you long time followers of this Report know that I use it very often for individual stocks and commodities, as well. The chart below is a Super Chart of Johnson & Johnson. Why JNJ? Note the following five similarities to the above S&P chart.

(1) It has formed an “up” head and shoulders);
(2) The “momentum” portion of the chart (at the bottom) shows the green line (fast) almost into the bottom section of the chart, while the black line (slow) remains quite high, a potential “resume the rally” setup;
(3) We can draw a good neckline on the formation for the price to cross up; and
(4) We are NOT yet above the Keyline – but we are on it! Good news, but not great, just yet.
(5) We are closing in on (nearly are on) the Headline.

Here is what I see. First, we need to cross up the neckline, currently at about 62. The close Friday (Oct 2) was just shy of 60. If this cross up occurs and the headline is not violated to the downside by much, the target for JNJ is calculated by adding the distance from the low of the head and shoulders (48) to the neckline (about 62), a total of 14 points. A cross up and close on a Friday night, would say that an 85% likelihood exists that could take us to 62+14 or about 76 on the JNJ chart. Nice move, if it happens. Thought you should have this info.

By the way, if you are wondering what the light blue area on the chart is, I use this on stocks and commodities as a warning that the Buy/Sell position is possibly changing, but not actually for making the change until we clearly move one way or the other out of the light blue area. For stocks, this seemed necessary some years ago to prevent too many position switches from Buy to Sell and back.

Just so you know, I will not be keeping a regular trading portfolio for this Report, but I will from time to time include a Super Chart on stocks or commodities I think merit your attention. Each will be updated with their current Super Chart interpretation. Usually I will not be making update to these charts. Down the road a bit, I may well try to figure out a way you can access updates to these on your own.

Well, that’s it for this week. Glad to have all you fans of The Bawldguy on board. We are going to have a lot of fun in future Reports and most important of all, the Super Chart should keep us on the right side of this incredibly tough stock market – as it has for decades now.

Next week, I will have some comments and Super Charts you won’t want to miss on the status of the Bond and Dollar market. So, until then, I do hope your coming investment week is a good one. In the meantime, you keep in touch. I do! See you next week.

This entry was posted on Monday, October 5th, 2009 at 9:32 am and is filed under Capital Growth, Economy, Max Whitmore. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.