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November 11, 2005

Stock market movement, mid-Nov-2005, Fri., Nov. 11, 2005, 9:51 AM

Stock market prices move for many reasons, most of which are related to corporate fundamentals, technical trading tactics, quantitative risk assessment (combo of fundamental and technical), and economic drivers (interest rates, forex rates, commodity prices, incomes, war).

Having studied capital markets in depth and applied them in trading at a professional level, I can say that the most influential teaching and learning came from a technical analyst by the name of Ian Notley, who became a colleague and friend. Notley taught me that there is a trend and cycle movement of price data that results from free market trading among people. He was a significant influencer of many of today's leading capital markets analysts and traders.

Notley taught that price cycles are composed of four sub-cycles or phases. These can be graphically illustrated as a clock or a wave, the purpose of which is to identify prospects of market prices relative to risk as perceived by the marketplace.

I found the following graphic at Yahoo Finance. You can be assured than whomever takes credit for it (as communicated by Yahoo) did not create it, and is entitled to no ownership. This is a concept, like breathing, that belongs to all of us.

This graphic can be applied to data series of different time duration. The data can be monthly, weekly, daily, hourly or by the fraction of an hour.

Traders who are most comfortable with an Extra-Year, Intra-Year, Intra-Month, Intra-Week, or Intra-Day perspective, rely on the related price series as the core of their analysis. But they take all price series data into consideration. In fact, very long-term traders use quarter-yearly and yearly price series data into consideration as well.

The U.S. equity market is presently in U1 phase for the Daily price series data, and terminating U2 in the Weekly price series data. There is a possibility that at about Dow=10,300, following the termination in the current short-term rally, that the intermediate-term bear would carry the Dow to 9800. Should the Monthly price series data at that point turn negative, the Dow=9200 scenario I paint could become a reality.

But never lose the perspective that the stock market is us". We move naturally and unnaturally at times; but we always move. And I believe that over time, we move up and down, and we tend to do it together, for all the reasons given in the first paragraph.

Posted by Posted by Bill Cara on November 11, 2005 09:51:43 AM | Category: Trader Tools