Andrew's Pitchfork

I've been playing (and having loads of fun) with the Andrew's "Pitchfork" (or Andrews Median Lines as they are also known as) lately. There are plenty of links (well links within the links) to visit at the bottom of this post. For now, start with the basics,
Drawing the Andrews Pitchfork: see this link- Choose two alternating swing high/low pivots, label "B" and "C"- Construct the Median Line (ML) to connect "BC" with a third pivot. "This pivot usually immediately [precedes] price swing BC but it can be any pivot [preceding] BC."
So, essentially, you have two pivots that are bisected with a prior pivot, while extensions off of your "B" & "C" pivots become your Upper & Lower Median Lines (UML/LML) like so:There's also the Schiff Variation:
-Both share the same "BC" line, however the Schiff Meridian Line originates from the midpoint between A & B, like so:
This Schiff variation is good for using with gaps.

There's also the concept of including Upper and Lower Trigger Lines:
- Simply extending lines off of the AB point and AC point, like so:See this link for Trigger Line setups.

There's also the "Sliding Parallel Method" which I'm yet unable to comprehend.

Now some fun with charts: SPY Daily

The Schiff version - the handle (center line) originates at the mid-point between the A and B points:The Modified Schiff version - the handle (center line) originates 50% between the A-B points and directly above the "A" point.
Tradestation also gives you the ability to add parallel bands to the pitchfork (use for the Sliding Parallel Method?) to give midpoints between the BC lines or percentage extensions off of the pivots.Here are 3 forks in the recent SPY price action. I included a stochastic for the sake of strategy development which one might base trades off of, like those indicated by vertical dash lines.
Some more key concepts include:
- Median Lines should be tested before being traded off of.

"How do I know which pivots or swings to choose? The answer sounds simple-minded, yet it is the single best answer I can give: Draw many lines and use the lines that prices respect when you trade. Draw as many lines as your eye sees as pivots because, often, the first or second or third combination will not 'describe' any of the action of price when you first draw the MLs...I try different pivots, starting with major pivots in the weekly or monthly mode...and then draw MLs off of lesser and lesser pivots. I do erase MLs that are not of major pivots and do not 'describe' price."

"The first simple rule is that downward sloping MLs indicate prices in a downtrend--downtrends are made to be sold and the Lower ML of a downward sloping ML describes prices that will trend lower. Upward sloping MLs describe uptrends."

"Most traders think that MLs are a stand-alone tool, but I was taught to always use them along with many other signs of support and resistance and it is the integration and interaction of these many tools that can make the techniques valuable.""...it would intuitively seem that major swings or pivots make the 'best' points to use for all Median lines. But in practice, the best points to use are the points or pivots that describe or contain the price action. I know there are 'purist' chartists and if that's your preference, then by all means, draw the lines that suit you. But the goal of the Median line is to contain or describe action as it unfolds--and so by all means, be creative. Often, it's the obvious pivots that work the best, but at times, you have to get your hands dirty. I'll give a few creativity hints: If all else fails or if you are looking to use these techniques on 'short term' trading, try using the highs of the three pivot points, or the low. Or use the extreme of a gap. Or use an extremely wide day as the high and low of an A-B-C. Try it. You can always erase it if it doesn't describe or contain action."
"Don't blindly trust an untested line, unless you have other reasons to expect that support or resistance to hold. But once it has been tested and even better, when you can add the 'confluence' of other indicators like trend lines, fib projections and retracements, chart formations--then you can have much more confidence in the Upper and Lower Median and Center Median lines.""Actually, though it is very seldom taught, you can draw and use a Median line using the open high and close of a bar. Period. Does it work? It can. That depends on what you are trying to use it for. It can be great for setting stops, for example."


Click on all the links on this page, a wealth of information; http://www.trading-naked.com/AndrewsPitchfork.htm

some charts

AAPL exhaustion gap:
GS sits on top of a long running Support/Resistance pivotFCX printed a shooting star on waning momentum
Looks to me like a complex Head & Shoulders top in XLE. What I like here is how price is wedged between a short & intermediate Moving Average that looks to be crossing in a bearish way. Also, the momentum oscillator is correcting into the slow line (think; momentum, pullback, extend).
Now take a look at the range we find ourselves in:
IWM - though open for interpretation, I'm seeing a bear flag. A measured move of which would put us right back to the bottom of this sideways range ($67).SPY- While this one is looking like a H&S pattern with a measured move, again, back to the lows of this range ($115-ish).

ZG Inverted...

Taking a look at Gold this morning and a pattern which seems to repeat in this commodity is the inverted roof, take a look;There's a striking similarity between the current pattern we find ourselves in and that from mid-2008 (the second Inverted Roof pattern highlighted on the above chart) where price broke out, only to result in a fake-out and rush to cover.
Similarities exist between Inverted Roof patterns and Inverted Head & Shoulder patterns, and it looks as though price has recently traced out an inverted H&S pattern, which could play out shortly (interesting that within the current inverted H&S there was also a little H&S pattern within).

resistance

Overhead on the Q'sLooks like a lot of people were waiting to play off that level

continuation

I posted this chart yesterday, so keeping with the previous day's levels we move forward into today extending the gap range area and watching for Support/Resistance at previous strong volume points.
Previous Resistance turned Support held today (coming very close to previous day's VPOC).
Resistance throughout the day was the $116.90 area ( a previous area of strong volume support).Here's a look at the most recent Volume Distributions, today's lows came right into the zone of yesterday's VPOC. The indexes have some formidable resistance ahead of them (as they have since getting beyond their 38.2% retracements. The Q's being in the lead in terms of a recovery, it is a mere 12% off of it's '07 highs. Between it's close today and the $50 level, there's a 78.6% retracement zone and a prior swing high to contend with, if there's some selling on the horizon me thinks it should come with a test of these levels.IWM overhead gap fill scenario in play (same goes for DIA and SPY)

RbS

Resistance becomes Support (RbS) in the SPY as price gaped down (on scant momentum and returned back to a previous consolidation level.Looking at the Volume Profile of the past few days, watch areas of previous large volume levels, particularly those not yet tested (VPOC). Below we see some levels of potential Support/Resistance, I also marked the gap created on Wednesday last week. This perspective highlights the concept that price often tests areas where it previously sliced through.
Now look at how it translated onto a 5-min price chart with the same price levels highlighted:
Not labeled on the above charts is the overhead resistance level (in terms of the volume profile) between $116.90 - $117.15.

Candle Patterns

Ran across some text book candle patterns, take a look:
A Bullish Piercing Line pattern in TSL:
OK, this isn't exactly a Bearish Meeting Lines pattern in BA, but comes within a few cents:
Nice example of Support-turned-Resistance looking at the weekly chart:A Bearish Hanging Man in GS:Not very glamorous, but a Bearish Engulfing pattern on the XLI:Bearish Dark Cloud Cover IYT:

Then and Now

Looking at the current market in the SPY I was drawn to a similarity between the most recent activity and where we stand at this juncture. This is by no means a prediction of any sort, just a curiosity that I believe may signify an important level that our market currently finds itself.
First, take a look at the time period of October 2007 and compare it to where we are at the moment. Five main components exist; (1) There was a primary trend in place (both of which bullish), (2) Price sold off from it's highs at a previous resistance level (in the case of Oct. '07 it was the highs from March-Sept., while recent resistance extends back for quite a long time, see this post), (3) Price put in a higher swing low on it's move down, (4) we had a re-test of the previous highs, and (5) Price then rallied, exceeded, and closed higher than the previous highs.
Seems innocent enough, and perhaps may appear as a non-correlation. However, the Oct. '07 behavior demonstrates a supply/demand exchange where exuberant buying by "weak" money feeds right into the heavy distribution of the "smart" money.
Now take a look at daily charts with volume of these two events:In both instances there is relatively large volume on the down move, with a volume capitulation spike at the lows rocketing price back to (and slightly beyond) the highs (39-days in '07, 29-days most recently, so far). All in all, very similar structures in both price and volume (inverse Head & Shoulders with weak volume in the Right Shoulder compared to that of the Head and Left Shoulders).

Now take a look at a broader perspective of this market and what happened prior to the '07 top in SPY, more specifically what price did off the bottom in 2002. Going back to 2002 the SPY bottomed before climbing 32% in a 52-week period.
I chose the point that I did for my beginning measurement for the following reason:
The market at this particular time put in a triple bottom (or, arguably a reverse Head & Shoulders bottom) where the 3 low points all came within 2% of each other. So, I chose to measure from the point where selling finally turned over and buyers decisively stepped in, giving impulse to price. Whereas the case with the 2008 lows, price formed a "V-bottom" and the price impulse never looked back, gaining 42% in 53 weeks (so far). If one prefers to measure from the absolute bottom in 2002 we would be looking at a 74-week recovery of roughly 35% before hitting resistance (at the price we currently find ourselves) and consolidating into a shallow flag retracement.
What's striking to me is this resistance level now happens to coincide with that back in 2004, and look how much upside was left once price cleared and tested the Resistance-come-Support level!
So, it would seem we're at a very telling juncture (though it may take months to resolve itself). Do we fade off of this $116 area and consolidate for a while only to break above, retest, and continue higher?
Or, do we go the way of the 2007 2B Top highs?
The former will develop over time, while the latter may be more fierce and volatile.

Wolfe target

The bearish wolfe wave target for the DIA was achieved today. The gap created on Wednesday held as support.

nothin goin on

Not much to say...the only observation I have at the moment is a potential bearish Wolfe Wave in the intra-day DIA:The large volume surge into the #5-point "sweet spot" fits the MO...whatever. The target would only put it to a gap fill left from Tuesday's gap up.

115.14

January's monthly high for the SPY was $115.14. Seemingly insignificant, but look at what this level has meant to the SPY for well over 12 years. Red arrows = resistance, Green arrows = supportDon't get caught up on the exact penny of $115.14, rather use that level as a suggestion of possible support/resistance.
So, starting with 1998, here's the intraday $115.14 level:
July 1998-Dec.1998:
March 2001 - May 2002: January 2004 - May 2005: September/October 2008:
And last but not least, 2010:
And if that doesn't get you excited, take a look at yesterday and today on the 5-minute time frame:

energizer bunny rally

In yesterday's post I marked up a chart of the SPY using the Stevenson PTT method. Here's a continuation of that chart into today's session.As you can see the target for the Regular Cycle after the open came right on time and fell within a penny of the PTT. It also happened to fall within previous volume clusters and Tuesday's Point of Control(more on this later). The ensuing rally out of this area then formed our Inverted Cycle and, though it rapidly approached the PTT, fell short of the mark before entering it's Regular Cycle. Two things can be garnered from the two middle cycles today.
- The first IC of the day fell short of it's target, but approached it in a rapid pace.
- The RC that followed fell well short of it's target, and instead morphed into smaller cycles on the smaller time frame, turning price higher, like so:
Back to the volume cluster levels. Here's a look at the most recent day's volume distribution, where I marked the strongest levels. Yesterday's distribution level $115.11-115.16 is our VPC. Transferring those levels onto a price chart, here are the 3 bands I was looking at going into today:
The lower range acted as nice support, while the VPC from yesterday was a level of potential resistance (though we didn't quite make it that far this morning, price did hesitate within it later in the afternoon). The middle set of hash marks ($114.92-114.8) saw price acceptance rotate within it's range through most of the day.
The price congestion at the Open is highlighted in a rectangle. At this point a surge of volume allowed our open to act as support.

It seems that the only hope for a bearish outcome to this rally (even if that merely means a reasonable pullback) may be a 2B top. In which case we should look for a close under today's low within these next few sessions.