Did you realize this single Median Line has defined a “road-map” for the S&P 500 for almost 6 years?
This chart of the S&P 500 illustrates the immense value of Median Line Analytics. A Median Line needs three significant pivots to form on a chart in any time frame. We label these P0-P1 and P2. On this weekly chart, you will see that P2 was formed in October 2011.
From 2011 to Sept 2017, this single Median Line on the S&P 500 has defined:
- strength of trend
- lines of support and resistance
- changes in price behaviours that precede corrections
Since P2, this single Median Line has defined the “right side of the market” with objective clarity. The trend has been bullish and strong. That is not a subjective opinion, it is simply what the objective analytics is saying.
Many market commentators have expressed bearish views since 2012 with some even speculating a “crash”. Is that what price has been doing?
What Happened to the S&P 500 in May 2015 at pivot P3?
There was a clear change of behaviour in price at P3. Price is king and if you are a trader, or investor, it is critical that you understand what price is doing – and more importantly, what it is not doing. In this example, price was not rising to hit the upper sliding parallel and instead, was rolling over.
Failure of price to reach the upper sliding parallel (SH – with red arrows) at P3 pre-warned of weakness ahead.
Price then broke down through the lower sliding parallel (SH – with blue arrows) and this added more confirmation that a correction was underway. When price breached the lower parallel of the Median Line it then retested the parallel at the big red arrow before moving lower.
This corrective price action was visually clear, objective and consistent with what was anticipated using Median Line Analytics. It was also possible to pinpoint P4 using a single Median Line on a daily chart and this was critical to signal the resumption of the uptrend.
What are Sliding Parallels and what do you mean by a change in Behaviour?
If you are not already familiar with these terms, there are some free educational modules to help you. The sliding parallels play a huge role to:
- monitor changes in price behaviour
- evaluate risk
- highlight where to adjust stops to manage risk
ADD LINK TO EDUCATION MODULES
What is Likely to Happen Next?
Price is currently trending up along a warning line related to this Median Line. A warning is an outer line parallel to the Median Line and equidistant to quartiles.
Now that P3 and P4 are defined, it is also possible to apply a new Median Line to the weekly chart (not shown). Eventually, there will be a change of behaviour that will lead to a bigger correction, but the Median Line Analytics will pre-warn when that is likely to occur in a similar way to the example on these charts.