Quick Andrew’s Pitchfork Tool Insight on the SP500

May 13, 2009: 8:00 PM CST

Let’s take a quick look at what the mysterious “Andrew’s Pitchfork” chart tool is telling us currently on the S&P 500.

The Andrew’s Pitchfork is a type of ‘auto-trendline’ tool many analysts use when a market appears to be ‘channeling.’  There’s a lot one can do with the tool which is beyond the scope of this post.

To draw a classic Pitchfork, start with a key high, draw to a key low, and then draw back up to a retracement high (software programs might be a little different in the drawing of the Pitchfork).  I have labeled the steps on the chart and then drew in yellow highlights on where I clicked.  Check the resulting grid that your program draws for accuracy.

In other words, don’t start drawing Pitchforks all over your chart – make sure that the market has ‘respected’ them in the past as key support and resistance.

There are two obvious insights you can glean from the current “Pitchfork” Grid Analysis:

1.  Because the grid has held the market both as support and resistance in the past, it should be expected to continue to do so as long as price stays within the grid.  This means that odds favor a pullback down to a minimum of the mid-line could be expected – that’s currently at 750, but as more time passes, the mid-line will trail lower, perhaps down to the 700 level.

2.  If price breaks upward from here OUT of the confirmed trendline to the upside, we should expect a continuation move to the upside and an invalidation of the grid, which would hint at the end of the Bear Market.

It goes without saying that the market must breakout of the upper pitchfork gridline to expect any continued bullishness.  Failure here would be a massive defeat to the bulls and would pull price back to the midline at best.

Treat the Andrew’s Pitchfork tool similarly to the way you would Bollinger Bands (which are a standard deviation tool).

Watch this level closely to see how the market reacts to this current Pitchfork Grid.

Corey Rosenbloom, CMT
Afraid to Trade.com

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22 Comments

22 Responses to “Quick Andrew’s Pitchfork Tool Insight on the SP500”

  1. KK Says:

    Corey, Thanks for your great insights and your tireless efforts to educate others!

    I am sure the FED mandated market manipulators at Godman Scahs, and their shills at CNBC, know all about forks. Through their market manipulations, they have been forking private funds into their own pockets.

    So, it is quite likely that they will try to break the upper line of the Andrew's Pitchfork Channel in their attempt to convince everyone that the bear market is over.

    If they succeed, will it invalidate technical analysis, as we have known it?

    The FED is trying to rewrite the books, literally speaking, with their not marked to market accounting, buying T-bonds, bailing out banks, trying to control all business, firing CEOs, twisting everyone's arm etc. etc..

  2. Corey Rosenbloom, CMT Says:

    Good points – though I wouldn't take it for granted that CNBC folks know all about technical analysis – John Murphy tells a tale of how he was about to go on for an interview and he asked off camera “I'm going to discuss Fibonacci – do you think that will be ok for viewers?” and the host said “I don't know why you'd be discussing that – it sounds like something I had for dinner last night.”

    But I bet the Fed does employ or rely on analysis from technical analysts as in “What are the masses following?” so they can work around that and catch the chartists leaning the wrong way.

    Regarding re-writing the textbook, all we can go with is all we know. The concepts in modern TA is derived from Charles Dow forward, over a hundred years (candlestick analysis is far older than that).

    If the Fed's on a campaign, it will create actions that go against both technical (charts), fundamental (valuations) and quantitative (statistical/algorithmic) analysis. All you can do is look at the past and extrapolate the future based on odds and probabilities.

    But if the Fed's really manipulating, the answer is very simple: Go long and forget everything you know!

  3. Neil Says:

    Hi Corey …. High time that bulls threw in the towel … and a bear party started

  4. shortstock Says:

    Hi Corey …. High time that the bulls threw in the towel and the bear party started.

  5. Tim Says:

    Check the pitchfork out on log scale.

  6. dawn Says:

    Beautiful pitchfork Corey. One of these days, I'm gonna have to learn how to draw those for myself 🙂

    I really enjoy following your posts here and on Twitter. Keep up the good work!

    @OptionGal

  7. j0sh1ngU Says:

    corey this is how i would draw the pitchfork. great tool, but definitely takes time to draw it correctly, but very powerful tool.

  8. j0sh1ngU Says:

    really wish i could find a pitchfork for gld. corey, it can be used for both log and nonlog scales correct, obviously the points would just be different

  9. kbmartin Says:

    I think I would stand with the Prechter crowd on this one. The market is bigger than the Fed. The Fed can borrow and print money to try to make everything look better than it is, but they can't make people consume when they're maxed out on debt. They can't make retail sales go up. They can't make negative social mood go away overnight.

    The whole reason pitchforks, and Elliott Wave, and all of those things work (some of the time) is because you can only push short-term frenzies so far before reality (primarily evidenced as consumer spending) asserts itself. Companies can only generate real value when people buy their stuff, not when, for example, new MTM rules allow them to cross some arbitrary threshold of tangible common equity.

    Corey, have you noticed recently that retail figures seem to maybe be a leading indicator of the market?

    Also, the value of U.S. equities is based in large part on how many dollars equity-buyers are willing to put into the system. If the Fed manages to bust technical analysis as we know it, I wonder if it will be by putting so many dollars into the system that the extra dollars you make in equities will only break you even. Of course, in that scenario Corey is correct that you should “forget everything you know and go long.” Holding cash would be bad. But also, the future would be pretty bleak.

    Kevin

  10. Corey Rosenbloom, CMT Says:

    I'm with you!

    I'm not talking end of the world stuff, but for heaven's sake, a pullback is in the interest of everyone. The further it goes, the harder the snapback.

  11. Corey Rosenbloom, CMT Says:

    Looks nice – it tags less points and price is currently reversing above the midline.

    I'm more of a fan of arithmetic charts, but you're right – it's best to look at both.

  12. Corey Rosenbloom, CMT Says:

    Thanks Option Gal!

    Think in terms of Elliott Wave, and you're looking to start at the bottom of Wave 1, draw to the Top of Wave 1, then draw to the bottom of Wave 2 (vice versa for downtrends as seen above).

  13. Corey Rosenbloom, CMT Says:

    Agreed! There's so much you can do with this overlooked TA tool.

  14. Corey Rosenbloom, CMT Says:

    I'm having difficulty as well – need to go back further in the data (try the first swing from $41 to $45 in 2005 on a log chart – interesting).

    The angle of ascent and descent has been so steep over the last year that a pitchfork is difficult to draw.

  15. Denis Says:

    Hi corey,
    I wonder why you are saying “3. Draw to a retracement high”, but when I look on your chart, you have draw back to the closing price not exactly to the high. When I draw it to the real high, I get a different result then you.

    Can you explain what is the right way to draw pitchforks?

    Regards
    Denis

  16. John Says:

    Hi Corey:

    I wondered if you could comment on the reverse head and shoulders of the S&P 500. To complete that pattern, could 800 be enough or would we need to go down to the 743? If we did test the 743, would that fall in line with your pitchfork retrenchment back to the mid-line? Thanks for your insight.

    John

  17. laurel Says:

    hi corey

    so where are we now?

  18. laurel Says:

    hi corey

    so where are we now?

  19. Andrews Pitchfork Update on SP500 | Afraid to Trade.com Blog Says:

    […] are still valid) June 18th on the S&P 500 (which show the ’standard’ Andrews Tool) May 13th S&P 500 which shows a Downward Pitchfork from the Market […]

  20. Andrews Pitchfork Update on SP500 | Penny Stock Trading System Blog Says:

    […] are still valid) June 18th on the S&P 500 (which show the ’standard’ Andrews Tool) May 13th S&P 500 which shows a Downward Pitchfork from the Market […]

  21. Andrews Pitchfork Bounce for SP500 Update | Afraid to Trade.com Blog Says:

    […] Look to see if there’s ever a break to the downside of the Median line, currently situated around 1,050 and rising, as that will potentially signal a change in market character just as the upward break from the down-sloping trendline that occurred shortly after I posted the May 13th down-trendline update. […]

  22. Andrews Pitchfork Bounce for SP500 Update | Penny Stock Trading System Blog Says:

    […] Look to see if there’s ever a break to the downside of the Median line, currently situated around 1,050 and rising, as that will potentially signal a change in market character just as the upward break from the down-sloping trendline that occurred shortly after I posted the May 13th down-trendline update. […]