SP500 Angular Momentum and Daily Rallies

Apr 29, 2011: 12:55 PM CST

What does the concept of angular momentum say about the current strong rallies on the daily chart of the S&P 500?

Let’s take a look at both the angle of momentum and price distance traveled since the 2010 bottom:

Click for full-size post.

What we have above is a daily chart of the S&P 500 with emphasis on the point values traveled along with the angle of rise (momentum) during the previous five up-swings in the stock market.

I’ve ‘squared out’ the chart so that each  month on the horizontal axis is equal to 50 points on the vertical axis – notice how the gray boxes form squares as best as possible, which is important given any type of analysis that compares price and time together.

So let’s start with the swings up off the July 2010 low of 1,010.

Let’s quantify each of these five swings by price, angle, and time (bars):

1.  July 2010:  120 Points; 64 Degrees; 23 Bars

2.  August 2010:  189 Points; 58 Degrees; 49 Bars

3.  November 2010:  167 Points; 51 Degrees; 55 Bars

4.  March 2011:  91 Points; 68 Degrees; 15 Bars

5.  April 2011 (in progress):  65 Points; 75 Degrees; 7 Bars

For reference, 1 Bar equals 1 trading day.

What does that tell us about the current swing in progress?

So far, it has the greatest/steepest angle of ascent (75 Degrees) and probably has further to run in terms of point values compared to the prior swings.

It’s highly likely the rally phases in the chart above are heavily influenced (that’s an understatement) by the inflationary/easy-money policies of the Federal Reserve (and trader/investor reaction to them, including short-sellers buying to cover losing positions) that we all affectionately know as “QE2.”

Chairman Bernanke’s initial announcement of a second round of stimulus occurred during the Jackson Hole speech/conference on August 27th (the swing low just before a 189 point rally) and then began in earnest (officially) on November 15th which preceded a 167 point rally.

Nevertheless, it’s important to quantify swings and know what to expect in the present based on historical data and simple pattern repetition.

Use the chart above as a reference for swing value and duration, as well as angle of ascension/momentum as we travel higher and higher in price – making note if the current swing confirms (or breaks) with recent historical norms of the prior swings from 2010’s July low.

Corey Rosenbloom, CMT
Afraid to Trade.com

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6 Comments

6 Responses to “SP500 Angular Momentum and Daily Rallies”

  1. Austin Coose Says:

    Would it not make sense to also measure angle and bars of the swing lows for a complete comparison?

  2. Corey Rosenbloom, CMT Says:

    Absolutely – only there just aren't all that many downswings in the

    current “QE2 Influenced” period since August 2010 (the March '11 Japan

    crisis excepted).

    Another thing to do would be to draw standard rising trendlines

    underneath price and measure the angle of those trendlines, but I like

    knowing the price distance and angle (and time traveled) for

    comparisons. There's plenty of ways to measure this concept.

  3. Tim Says:

    Please comment.
    In terms of time, the higher the degreee seems to lead to shorter duration. Your logic addressed degrees vs points. How do you factor in the time?

    Thank you for your observations.

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  5. Michael Says:

    I actually checked this out..it's pretty good surprisingly

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