Over the years, I have found certain areas of support and resistance to be especially effective in trend analysis. These special levels have been given the term pivot areas. These are areas which, once reached, act like a pivot man in basketball. The pivot man is faced with the choice of which direction to send the play; once the decision has been made and the ball has been passed, the play generally continues in that direction. When a market reaches a pivot area, a decision needs to be made to go higher or lower, and once a decisive close has been made away from or beyond the pivot area, the direction is likely to continue.
A good example of a pivot area is the 5040 level on the weekly hog chart. When the market has approached this level, it has either clearly turned or definitely con- tinued the existing trend with very little consolidation. Other examples include the 550 level in soybeans, 500 area in silver and sugar, 5500 area in cattle, 1500 level in soybean oil, the 80-00 area in Treasury bonds and the 205 level in soy- bean meal. Many markets exhibit pivot areas especially well on Gann (contract specific continuation) charts.
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The most powerful ally you can have in trading and analysis is the trend. A market may stay in a given trend for a long period of time, but change is inevitable.
Since change is inevitable, it is important to be able to identify when or where a market may turn. I use an analytical tool called terminal areas to identify a time or a place in the market where a trend potentially may change. Terminal areas are the single most powerful tool I possess.
The word "terminal" is defined as, at or reaching an end. It can also mean a stopping point. The importance of terminal areas is that these are the only places where a market can make a major turn. Very simply, a market cannot make a major change in trend unless it is in a position to do so. When a terminal area is reached, and if the end of the trend is at hand, the old trend will die and a new trend will be born. However, reaching a terminal area does not mean a trend change is automatic. Since terminal areas also serve as a stopping point, a market may experience an interruption of trend instead of a change in trend. An interruption of trend will develop as a congestion area or a sideways pattern, preceding continuation of the trend.
There are six primary areas which can be termed terminal. These are: 1) Major retracement levels, primarily 25%, 38%, 50%, 62%, and 75%; 2) congestion or sideways areas of the past, preferably from weekly, or even longer-term, charts; 3) old highs and lows, again from longer-term charts; 4) trendlines natural trendlines, Andrews lines, Gann angles or whatever your preferred method of drawing trendlines; 5) gaps caused by market action, not those created by the changing of contract months on a continuation chart; and 6) critical points in time, such as cycle turns, anniversary dates, Fibonacci counts, etc.
The combination of several terminal areas greatly enhances the probability of a major turn. Combine two terminal areas and you have a point which has as much as three times the influence of a single terminal area. Three converging terminal areas have the potential to be as much as nine times more powerful than a single area. Occasionally, a convergence of four legitimate terminal areas will occur. This development can evolve into the "home run" type of move.
Terminal areas which have the greatest impact for a major trend change are found on long-term charts. Also, I have found the combinations which have the highest reliability in forecasting a turn usually include a major time point.
"What is good for General Motors is good for America"
Back in 1955, Charlie Wilson, then chairman of General Motors Corp. made this somewhat pompous statement. Here we are, some 53 years later and look what is happening to the stock of General Motors (NYSE_GM). This stock is at a 53 year low and shows no signs of turning around.
So the question becomes, what happened to America and General Motors? How did this company lose its edge in the marketplace?
HOW DID GM GET IT SO WRONG?
Digging through the history of GM, I found one fascinating item. GM developed an electric car back in 1996 when gas was $1.28 a gallon! They named the battery powered car the EV1 and then basically scrapped it in 2002.
Today there is very little evidence that this car was ever in existence. I am sure you're thinking right about how we could sure use a car like that today with gas prices trading over $4.00 a gallon.
When you look at the stock of General Motors, you'll see that the high for the stock in the last eight years was around $68 in 2002. What's interesting is that high point in the stock was right around the time GM scrapped its EV1 car.
So what happened to GM's first electric car? GM claims there was not enough public demand. That could be, but I think the story is a lot more complicated than that.
You can see all the GM - Big Oil conspiracy theories in the movie
From a business standpoint, why would GM want to improve something that would kill the goose that lays the golden egg? General Motors tends to make most of its money on sales of replacement parts. Up to 40% of its profits come from selling replacement parts for existing GM automobiles, so why would they sabotage their own cash flow?
Unlike a gasoline driven car, which has many moving parts, an electrical car like the GM's EV1 has very few parts to go wrong, so therefore part sales and cash flow would go right into the tank for GM. The other perception problem GM has with an all electric car with zero emissions is this: if GM produces an all electric clean car with zero emissions, it's making an admission that all of their other cars are dirty, spew out harmful emissions and pollute the planet.
But look at how GM got it wrong. This may be one of the biggest blunders ever in American corporate history. GM took the lead in electric car technology (smart move), but was not convinced that they as a company could be profitable selling electric cars.
WHO OWNS THE MOST ADVANCE BATTERY TECHNOLOGY?
One fascinating piece of information is that GM acquired advanced battery technology from Ovonic's in the form of a NiMH battery. This battery produces a stronger, longer lasting charge, and was the ideal battery for their second generation of EV1 cars. What came out later was truly a shocker, GM sold this amazing battery technology along with the patent (dumb move) to Texaco who was later taken over by Chevron. Now Chevron owns the technology and the patent!
You have to ask yourself the question... why would an oil company be interested in purchasing advanced battery technology from a major car producer like GM?
I'll let you draw your own conclusions.
Fast forward to 2008 when everyone is mad as H#LL for having to pay over $4.00 for a gallon of gas. Back in 1996 when GM launched the EV1 with very little fanfare, the cost of gas was around $1.28 a gallon.
Why GM decided to scrap the EV1 and look for short-term profits in big cars as opposed to building and preparing to adopt a different business model is still a mystery and one that has decimated GM's stock price in the last five years.
The automobile business has not changed in almost a century and the industry appears reluctant to embrace change. It would now appear that GM's business model like many of its big cars is rapidly becoming outdated and destined for dinosaur land.
LET'S LOOK AT THE STOCK OF GM
Let's take a look at the GM stock chart and see how you would have fared had you purchased GM stock at $68 in 2003. Then let's look at the same stock using a MarketClub's proactive approach. As you can see the results of a buy and hold strategy have been a disaster losing 79% of its value for all share holders while the proactive results have been quite stellar.
If a major company like General Motors can fall to a 53 year low, so can any stock on the big board.
Readers of this blog know that MarketClub uses a proactive approach when taking positions in the marketplace. The world has changed, and it has changed not only for GM but for many other mature companies that are using business models and products that are rapidly becoming outdated and will prove to be noncompetitive in the long run.
I'll finish by saying: "What is good for America in the long run, are smart businesses that embrace change." Maybe General Motors will get it, maybe they won't. The market will decide that one.
I can honestly say that 30 years ago I learned how to trade the markets in the pits of Chicago.
It was there, in one of those sweaty, tumultuous, in your face trading pits, that I learned one of the most valuable trading secrets in the world.
This one trading secret opened my eyes to why things happen in the markets.
This trading secret, which is over 800 years old, is one of the most monumental mathematical discoveries of all time.
The publication in 1202 of the "The Book of Calculation" was never meant to be a road map to success in the markets. However, it turned out to be an extraordinary blueprint for how modern day markets work.
The number sequences contained in this amazing 800 year old book, is like having a virtual DNA for every stock, futures and foreign exchange market.
No one knows for sure why these number sequences work. Some traders believe them to be mystical, others, like myself prefer to call them one of life's little mysteries.
I have been using this sequence of numbers to trade the markets for over 30 years. I have to say that after all this time, I am still amazed that these numbers still work!
My new 8 minute educational trading video that remains true to core principles of the "The Book of Calculation." Show you step by step, exactly how you can benefit from using this trading secret.
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Over the years, I have found certain areas of support and resistance to be especially effective in trend analysis. These special levels have been given the term pivot areas. These are areas which, once reached, act like a pivot man in basketball. The pivot man is faced with the choice of which direction to send the play; once the decision has been made and the ball has been passed, the play generally continues in that direction. When a market reaches a pivot area, a decision needs to be made to go higher or lower, and once a decisive close has been made away from or beyond the pivot area, the direction is likely to continue.
It was there, in one of those sweaty, tumultuous, in your face trading pits, that I learned one of the most valuable trading secrets in the world.
