Rising Trendlines – The Only Thing that Matters Anymore?

Apr 14, 2010: 11:49 AM CST

I often advocate taking at least a few moments to pull everything off your chart except price – doing so allows you to see the character or structure of a market without all the clutter.

This post is an update on my prior post “S&P 500 Trendlines Reveal Boundaries and Positive Feedback Loop” which still rings true today.

Since the February 2010 bottom, two trendlines have been the only thing that ‘mattered’ when setting up trading decisions – not volume or momentum divergences, not overbought oscillators, nor any other methodology.

Let’s return to the “Pure Price” view of the S&P 500 to see these short-term dominant trendlines.

Starting with the February spike low of 1,050, we have seen a relentless, non-stop (save for a few isolated ‘doji’ candles) rally that has been comfortably and stably contained within a rising parallel trend channel.

No advanced method, no reversal candle at an upper Bollinger, no divergence of any sort has stopped buyers from buying and short sellers from buying to cover (short-squeeze), creating one of the most powerful “positive feedback” loops most traders can remember in recent history.

Let’s drop to the hourly chart to see the intraday rally.

I often stress the importance of understanding market “Character,” which means objectively assessing what’s going on, what factors are overruling other signals, which indicators are working, and which are terribly failing.

Once you discover market character, go with the indicators or strategies that work and ignore those that don’t – continue doing so until the character of the market changes (which would likely be signaled with a downside break in the rising trendline.  Until that happens, expect the market to continue to ping-pong back and forth between the boundaries).

See my prior posts regarding how to identify Market Character:

March 25:  “Pure Price Trendline Look at the S&P 500 Reveals Feedback Loop

March 16: “Recent Popped Stops Again Reveal Character of the Market”

March 5:Looking Back and Forward on the S&P 500 Creeper Trend”

If you fail to understand the character of the market and the twists and turns it takes over time, you’ll likely repeat the same mistakes when on the wrong side of a market move.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

5 Comments

5 Responses to “Rising Trendlines – The Only Thing that Matters Anymore?”

  1. Chris Dunn Says:

    Hey Corey,

    I agree with what you said about market character. It's important for me to realize when an indicator has show me when it's probably not going to work. For example, broken divergence on a macs indicator shows me a strong trend is potentially forming, which means my rules adjust to suit that market character. Looking at the indicators that way, and having a dynamic trading plan can really clear up my decisions.

    Great work!

    Chris

  2. Chris Dunn Says:

    Hey Corey,

    I agree with what you said about market character. It's important for me to realize when an indicator has show me when it's probably not going to work. For example, broken divergence on a macs indicator shows me a strong trend is potentially forming, which means my rules adjust to suit that market character. Looking at the indicators that way, and having a dynamic trading plan can really clear up my decisions.

    Great work!

    Chris

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