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Wave59 is now 99.5% done, so the workload is finally slowing down. Quote.com just got added, so all that's left is to integrate eSignal and release the program. I actually didn't have anything to do today, so I thought I'd update the showcase page! It's been 6 months without an update, so I owe you about 25 more of these.
Take a look at the 5 minute chart of YHOO below:
The most interesting thing about this chart is the light green line that runs through price. That is the new version of the S&P Forecaster, this time applied to a stock. Probably the biggest reason for starting work on the Wave59 charting package was to be able to properly apply this forecast to stocks and commodities, so it was one of the first things that found it's way into the program.
As a quick refresher, this indicator is a forecast of the cycles in a given stock or commodity. It can actually be computed ahead of time, which means that the potential for a turn at point "C" was known before the opening bell. The recommended way for using these forecasts is as a general road-map for the day. Simply look for a move that looks like it could be steep, then shop around for a trade during that time.
Applying this strategy to Yahoo would have resulted in a nice short sale on 7/2. Aside from the opening surge, the best turn that the forecast gave was for around 9:45. The computer that made this chart is on Mountain Time, so this would have been 11:45 Eastern. Once 9:45 started approaching, it was time to check the other indicators to see if there were any trades in the wings. On this day we had the following:
1) Price was hitting up against the 200% retracement level of A-B.
2) The 9-5 Count signaled a sell with a red "9". The 9-5 Count is a powerful tool that tracks price cycles (as opposed to time cycles). The red 9's and gold 5's on the chart mark the spots where a price cycle has moved to completion. When a cycle has moved to completion, two things can happen. Either the market can move forward and continue the move in an extended cycle, or the trend can change. Once the market starts going one way or the other, it will continue to move in that direction until the next cycle completes. So it's very important to watch for 9's and 5's since this is where turning points can form.
3) We've got a nice momentum divergence signal. Notice that the pink momentum curve made a lower high at "C" and price made a higher high. These kinds of divergence signals are more than 70% accurate by themselves, and are even more important when they're part of a cluster of signals like we've got here.
4) Finally, notice the red bar at the bottom. This is a time count in bars from point "A". Point "C" is 55 bars from point A, an important number in the Fibonacci sequence. Simple bar counts like this can work wonders when combined with other analysis techniques.
So there are quite a few things going on at "C" to confirm our forecast. The important thing in all of this is to look at how a number of independent indicators all came together to confirm the turn. We've got cycles, price ratios, time counts, and a momentum oscillator. Most traders try to use non-correlated indicators, but they end up just choosing 3-4 different price-based indicators. A better idea is to select indicators that measure different dimensions of market activity. This means taking a look at price, time, technicals, and patterns. If you really want to get crazy you can even throw the planets in there. It's easy to get faked out by the market if you're only watching one dimension, but it's a lot harder when you watch multiple dimensions as we did in this example.