Swing Spans

Many people misunderstand and misuse trendlines. They are not
“bumpers,” and price is not a pinball. Alone, they do not predict
turns. Many factors must come into play simultaneously in order to set the
stage for a trading setup. The one case in which I’d tend to give them more
weight is in the case of trendlines that extend a year or more.

I’d like to discuss another use of trendlines today. They are good for
comparing the length of current swings to past swings. If we view history as
rough guide to the future — and that is what technical analysis is all
about — then we can derive some kind of idea of the duration or span of
current swings. We also look for hidden symmetries. You don’t trade off this
type of analysis. It is merely there to give you a roadmap. You then watch
the shorter-term action to see if it confirms what the roadmap is
suggesting.

Here is a weekly chart of the S&P 500 that I captured Thursday morning. I
left the labels off to give you the opportunity to identify the swing-span
comparisons and symmetries yourself. It is a good training exercise. In my
next “Chart of the Day,” I will elaborate on this concept further and also
provide you with a chart that contains labels.

Notice that I’m not using the trendlines to engulf price action into a
channel. Rather, I am using it to compare swing spans. The current swing from
the May 2001 highs to the current lows in September 2001 exceeds the span of
the swing between July 1998 and October 1998. However, let me bring your
attention back to the July 1998 highs. If you follow the blue trendline from
there forward, you eventually come to the current lows. Notice how two
parallel blue trendlines above it bound significant highs and lows. There is
some symmetry here which coincides with short-term up-biased CVR signals
and the climatic psychology of recent days.