I have spoken recently about the importance of trend channels and of the tendency of the market to travel within two parallel lines. We have spoken about it primarily in terms of the trend channel that formed with the rally off the July 2006 lows. We might also find an excellent example of this from trend that began all the way back in March 2003.
We can see from this parallel channel how the highs of May, June, and July kissed along the upper trend-line of this channel, as well as the high of October. We can also see how the lows of August approached the lower trend-line across the 2003 and 2006 lows. I find it interesting to note that if the S&P 500 were to return to test the lower trend-line again, then it would find itself around the 1400 area. I do not find it a coincidence that we find significance in this same number from a variety of perspectives.
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