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S&P 500 Rally: A 7-Day Winning Streak Described As Artwork

Jul. 16, 2013 4:15 PM ET
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An Impressive Rally Described as Artwork

What an impressive stock market rally since July 3rd. On Friday, the S&P 500 (SPX) closed at 1772.33 and is riding a 7-day winning streak, up +7.89% since the June low and today we find ourselves within a stones throw from all time highs. Are we on a collision course to take out the highs made in May? If so, far much further can it run?

Time and time again, I've seen big market moves before they happened and you can too when you become relentless at looking at artwork.

Let me explain.

Art Galleries, Investors and Traders

Have you ever attended an event at an Art Gallery? You'll notice that the room is full of enthusiasts... but each has various degrees of experience and appreciation for what they see. Those who like art, but who are not in attendance to purchase someone's work, only look at the picture on a surface level, then quickly move on to the next piece in the exhibit. That's the novice investor and trader.

There is another group, that stands in front of each picture to discuss and debate it at length. To the untrained eye, most describe only what they can see at first glance but those who can recognize and differentiate between art elements; such as, lines, colors, values, shapes, texture, space and movement may see an opportunity to purchase a fine piece of art.

We could all learn by describing artwork!

Technical analysis also has it's own set of guidelines. The Bible, "Technical Analysis of Stock Trends, 9th Edition" written by Edwards, Magee and Basseti provides the basis for evaluating markets (artwork).

And just like those who view artwork, so do investors. For example, I find the less experienced, can only describe or identify what he/she sees at first glance while those who train themselves to differentiate between chart elements; such as but not limited to, price movement, proportionality, patterns within patterns and degrees of trend may also find opportunity to buy the market or pass on it when the elements indicate that the Market may not possess the qualities required to establish meaningful value.

Lets look at an example of recent price action to illustrate my point.

The daily chart of the S&P 500 represents our piece of artwork. Some will quickly identify the elliott wave pattern in it's simplest form as an A-B-C. According to the Elliott Wave Principle, an A-B-C represents a corrective price structure that when completed, price should resume the previous trend which is up in this case. We'll soon know if theory prevails and if the market reaches all time highs.

While there are no guarantees in any investment endeavor, measuring the probability of events through pattern recognition is part of an Elliottican's day and how I personally assess markets. If you found it difficult to recognize or interpreted the decline from the wave 3 crest to wave 4 low as a five wave structure, may I suggest dropping your time frame and inspect the subdivision (the elements) of price movement from wave 3 crest of 1687.18, taking note of how each wave is connected to the adjacent wave.

Can you count five waves down? Are three waves connecting each five wave structure or do three waves connect to another three wave sequence?

The answers to these rudimentary elliott wave principles, should be part of any process that either validates or negates your 'first sight' conclusion and as you gain experience in evaluating a market's position and structure you may find yourself relentlessly looking at even the smallest details found on a tick chart like I do.

Sometimes, looking at artwork is all that it takes to see big moves and opportunities before others.

© 2013 Sinibaldi Analytics All rights reserved.

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Disclosure: I am long SPY.

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