Updated Andrews Pitchfork Insights for SP500 July 28

Jul 28, 2009: 11:17 AM CST

The prior post I wrote on using the Andrews Pitchfork on the S&P 500 was popular, and I wanted to do an update and add a little twist to classic interpretation of the Pitchfork tool.  Let’s take a look at the current Andrews Pitchfork price analysis of the S&P 500.


(Click for full-size image)

We’re beginning the Pitchfork at the November 2008 price lows and then dragging up to the January 2009 price highs (100%) and then dragging the tool down to the March 2009 lows (0%).

The classic Andrew’s Pitchfork tool gives us three points - the 100% line (top), the 0% line (bottom) and the 50% angle line (middle).

In this particular example, that doesn’t do us much good, so we need to expand the ratios (angular lines) to see if we can find more significance.  I then added the classic 61.8% and 38.2% Fibonacci retracements and saw that price had great respect for these levels all the way up off the March lows.

The “Fibonacci” Style Andrews Pitchfork contained prices and gave both targets and stop-loss zones that could have either assisted swing trades or helped you identify structure clearer.

Opportunities came when price rallied into (or declined into) one of the angular trendlines and formed a doji or some sort of reversal candle, which could have been confirmed on the intraday charts.

Take a close look at these opportunities.

To recreate this grid for yourself, you’ll need a software (charting) program that allows you to customize your indicators so that you can add extra levels to your Andrews Pitchfork Tool (I’m using TradeStation above).

Thinking outside the box of classic tools can yield excellent results at times - this is one of those examples.

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Corey Rosenbloom, CMT
Afraid to Trade.com

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

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  • Bob
    I'm new to the Pitchfork concept and have yet to read up on the topic.

    Looking at the projections, it appears future price directionality and projections are a result of identifying a historic price move (a completed leg) and drawing the slope of that leg, then projecting three lines perpendicular to that slope at the 0%, 50% and 100%. This seems to point at a "reversion to the mean".

    Taking it a step further, you've then added the fibonacci retracement levels parallel to the directionality defined by the pitchfork projection. These levels then function as support & resistance; a sloped fibonacci retracement grid.

    This is an interesting interpertation. The horizontal fibonacci retracement levels have always seemed somewhat out of synch and more a result of charting constraints. I like the new spin! Thanks...
  • Ole
    Using the pitchfork with log scaling is quite informative. I have been following this fork on log scale for a while and so far it stopped the advance on 7/24 at the median line
  • Ole,

    Exactly! One of my weaknesses is Log charting - I'm so used to doing everything with arithmetic but you can indeed get some alternate insights from log charts which can be more important (as fewer people are looking at them). Thanks for sharing!
  • scrillagorilla
    Looking at only the places where it bounced off the pitchfork lines, looks very nice. Then you look at the places where it DIDN'T hit the pitchfork lines, but reversed direction in between... Think of how much money you could have lost if you had been playing the pitchfork.

    Hindsight is always 20/20. I fail to see how this yields "excellent results". When the S&P broke right through the 38% line in early July you could have gotten short at 860, which certainly wouldn't have yielded "excellent results".
  • I do hope you're not suggesting using one analysis tool in isolation.

    Trading comes from edge, not accuracy. The benefit is that we have a level to inflect off of with a tight stop IF it is confirmed by other forms of analysis.

    The tight stop relative to the larger target generates EDGE which is more important than accuracy.

    We'd all love to have a tool that works 100% of the time - but it doesn't exist.
  • TerraNova19
    I have added Fibonacci 23.6% value. The result is very interesting.

    Thanks
    Catalin
  • Catalin,

    Great observation!! That's why I love doing this blog, as we all can get insights from great readers and commenters.

    For those who can't modify their pitchfork, the 23.6% retracement - which is a lesser known Fibonacci level - tags the lower swing down to the June 2009 lows, meaning this entire rally was contained very nicely within Fibonacci levels on the Andrew's Pitchfork.

    Those wanting to get short may have best waited for a break beneath this level. The Tri-Star doji pattern I mentioned previously occurred at the 23.6% "Fibonacci Andrews" tool.

    Thank you for sharing!
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