Well, I’m going to give it a try.
The idea here is to use what I’m about to show you guys with the tool I gave out earlier. Now since we already saw that the curve in the previous post was upwards, we do not expect a crash. The stock market may correct, but it will not crash. That’s the main idea.
Now lets’s combine it with this, an old tool out of the box:
At the bottom of the picture, this is an indicator of RSI the way it should be used. I just want to give a brief map key if you will so we can read the chart I shared properly.
- RSI measures the strength of buying.
- Price is likely to find resistance in two levels of RSI: the 66.6 and the 80 level. When RSI is between 66.6 and 80 we are in a vicious uptrend.
- On the other hand, Price will find support in the 33.3 level and the 20 level. When price is between 33.3 and 20, we are in a vicious downtrend.
- When price diverges, it indicates a CORRECTION and not a reversal. Reversals have their own pattern which I may discuss later.
On the actual chart, you see pivot points. A few notes on them, the way they should be used. I didn’t invent those methods, but they are rarely used although they are THE ONLY way to use them.
- When price moves past a pivot point without touching it, price will attempt to move back and touch the pivot point.
- When price moves past a pivot point without touching it, we are in a very strong trend. Those untouched pivot points become key areas where the trend is likely to resume. Let’s apply this on the long term chart before I move to the daily chart. You are more than welcome to draw the same levels on your RSI and apply pivot points and compare what I’m about to write on your own chart.
In 2009, price was between the 33.3 and 20 area, a vicious downtrend. By November 2009 it has moved past the RSI 9 moving average, the 33.3 line, the 45 exponential moving average and the 50 mark of the RSI; we are finally in a long term uptrend!
Confirming that uptrend was that price moved past the 2010 pivot point without touching it. What we want to see now is the RSI moving past 66.6 level, find resistance at 80 then diverge at a higher high. This would indicate the price will make an attempt to go down and touch its pivot point.
But that never happened. Come 2013 RSI finally moved past the 66.6 area, we are in a vicious uptrend. In august 2014, we saw the first RSI divergence, price (at the time) was telling us it will attempt to touch 1708 level.
2015 arrived and a new pivot was printed, at 1963. Price diverged again and now price is aiming to reach the 1963 area. We want to see a monthly RSI close to below 66.6 to confirm a correction is on the way The picture gets clearer when we check the daily chart:
The daily chart shows you how price found support at the 30 RSI level consistently. In November 24 RSI was between 66.6 and 80 we were in a strong up trend. Price then moved on to make a higher high two weeks ago but it couldn’t break above the 66.6 area. That’s price’s way of telling us it will try to make a dive and touch the 1963 area. It may not get there, due to shorter timeframe pivots which I don’t want to bother you with right now.
But given what I just shared I wouldn’t want to short this anyways; we have three reasons to buy actually: 1) RSI is showing a vicious uptrend. 2) Treasury yield curve is up, FED expects further rise in stock market in the future. 3) Pivot points tell us the 1963 area will be a tremendous buying opportunity.
In the long term we do expect price to move down and touch those horizontal lines I marked on the monthly chart, but there is no fear of that happening just yet.
