Two Constants In The Market: Emotion And Symmetry

  • July 9, 2003
  • Chris Tyler

When significant highs and lows
are fueled by action that spells out ‘crowd emotion’, I look for
technical evidence that the current cycle may be due for an ’emotional rescue.’
There’s probably more technical evidence out there (I’m sure Kevin knows ), but
in the vein of keeping it simple, one of the tools that I use are price
extensions in the form of AB=CD legs. 

The chart of the extended intraday action in the
‘Spyder’ has me seeing a two-legged bug that could be more frightening than the
eight-legged kind.

Does the current rally have ‘legs’ to go higher?
Well, in my humble opinion the ‘body’ of evidence might suggest approaching
fresh longs with a bit of extra caution. Slightly more than a week ago, the SPY
neckline was being broken on the daily chart. Our friends on TV made sure that
everyone was ready for this significant technical break. Sure enough, the level
broke, and intraday it provided shorts with some quick scalping profits.
Unfortunately, when everyone and their brother is looking at the same level for
breakdown confirmation, the market in its infinite capacity to fool the
majority, ends up making a percentage move in the other direction. This formed
the basis for the first leg, the AB extension.

The subsequent low at point C was also rather
‘dramatic’, as a trading error in the e-mini contract caused a very abrupt
pre-holiday show for traders everywhere. From here, the low was formed, and
potential price extensions for the next target could now be drawn. Today’s trade
took our one-legged friend, up to the 100% extension point. This action has the
Spyder forming another leg (CD), and some technical evidence for a top to exist
within the confines of a well-defined money management plan.

I love drama (maybe that’s why I watch TNT and
Law & Order so much), especially when there’s nature’s own version of ‘law
and order’ accounting for potential tops and bottoms. Just some food for
thought, and maybe another way to help aid in your money management decisions.

Chris Tyler

Â