SP500 Midweek Color Bars

Mar 11, 2009: 10:24 PM CST

I wanted to introduce a new feature – that of “Color Bars” in our analysis.  Let’s get started with a Daily look at the S&P 500 Index.

Let’s do a quick introduction to the color bars and their logic.

The bars are based on an Average True Range function (credit to LBR Group) where the color changes based on how far price has traveled off a price low (or high) in terms of a multiple of its Average True Range of the period.

Without giving away the formula, let’s say a stock is trading at $50.00 per share and its daily ATR value is $2.00.  If a stock in a downtrend made a low at $50 then moved up $2.00, then the price moved up one ATR and the color would change perhaps to Yellow.  If the stock moved up $4.00 – which would be two ATRs – off its price low at $50.00, then the color would then switch to Green.

While there’s a lot you can do with this, you’re mainly looking to classify price ‘swings’ as a function of the average true range, where a large enough move will change the color – and thus the intensity – of a swing.

Bottom line, in a downtrend, you’re looking for green bars to confirm shorting opportunities.  You’re also looking for red bars in an uptrend to confirm a buying opportunity – both retracement entries into an established trend.

You can see that the green bars in December and January – in the context of a downtrend – offered excellent shorting opportunities, as did the yellow bars in February – it’s a little counter-intuitive.

So this week’s move up hasn’t satisfied the criterion to ‘change colors’ or classify a swing yet – we’re still technically in a down-swing.  We’d need to move up a little higher to change the color to be in an official retracement.  It’s strange to say, but Tuesday’s big move up did not even move price one Average True Range off its lows.

Also, if you look at the 3/10 Oscillator, you’ll see we’re making an ever so slight Positive Momentum Divergence, which foreshadowed Tuesday’s rally to an extent.

It seems like there’s ‘open space’ above for price to retrace, though Wednesday’s doji close is not a strong bullish signal.

Keep watching price at these levels, as the expectation is for a move up as far as 800.  It sure ‘feels’ like there’s more up to go, but if sellers step in here and push us to new lows (meaning this is all the retracement we can get), I’m afraid the bulls will just call it quits and we’ll get a capitulation move that could do some serious damage to investors.

Corey Rosenbloom
Afraid to Trade.com

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7 Comments

7 Responses to “SP500 Midweek Color Bars”

  1. tony Says:

    Let´s take the bounce is SP500, in DOW, DAX, CAC 40, FTSE, IBEX, NASDAQ and we´ll see AFTER the real capitulation around 620-640 SP500, 6.000-6.200 INDUSTRIALS, even below, fibo 0,618 since 1.982.

    From Spain, Tks a lot.

  2. Corey Rosenbloom Says:

    Tony,

    It looks like that’s the most likely view. A rally here up into resistance and then a wash-out final wave down to make new lows, trigger capitulation, and put in perhaps at least an intermediate bottom.

    Glad to have you from Spain!

  3. Anonymous Says:

    ¿What do you mean when you say intermediate bottom?

    Tks.

  4. tony Says:

    It was me, sorry, I didn´t understand the significance of an intermediate bottom; do you think, we will see new lows as I pointed, below 7.469 in the industrials and below 666 in SP500.

    Tks

  5. Corey Rosenbloom Says:

    Tony,

    There’s legitimate debate in the Elliott Wave Community whether or not the final wave down to finish the 5th Wave will be the end of the 5-wave decline from 2007, or whether it will be the end of a horrendously extended 3rd Wave, meaning we’re about to hit an ABC Wave 4 up (that could take us to 1,000 – 1,100 on S&P) then we go to new lows in the final Wave 5, perhaps in late 2009 or early 2010.

    Plus, it just gives me cover to use the word “intermediate” instead of “absolute” bottom.

    I mean, who wants to stick their neck out to call a bottom?!

    Well, besides people doing it every day on TV.

  6. tony Says:

    I bet, a new declinig big wave is over, but not now, may be in months I know, there´s a wave B-up, before, that, BUT HERE IS THE QUESTION: We are going to see new lows in days after the bounce in short-term?, before the waveB -up unfolds.

  7. tony Says:

    I bet, a new declinig big wave is over, but not now, may be in months I know, there´s a wave B-up, before, that, BUT HERE IS THE QUESTION: We are going to see new lows in days after the bounce in short-term?, before the waveB -up unfolds.
    Forgot to write great post. Looking forward to seeing the next one!