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S&P 500 Corner Part II

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Case Studies of Market Turning Points

Below are some examples that show turning points and the associated price patterns. Note: For ease of use, please print the following Number Key and Examples

Number Key for Chart Examples:

     1. A doji at an intermediate high or low associated with a rise in volume

     2.  A sharp rise in volume

     3.  A penetration of a Bollinger Band

     4.  A one, two, or three-tick new high or new low

     5.  A quick market move up or down with little or no follow through.

 
       
Example 1: 5-min bar chart of  S&P 500 (SPH8) on January 7th, 1998 Day Traders Chart 5-Min Bars
 

The price action on January 7th 1998, produced a down spike with the open and close nearer the highs of the day.

8:45  Volume increased dramatically over four time bars just after the open, producing a short-lived up move that was stopped at...

9:00  ...a doji.  On the 5-minute charts, dojis are very potent, as this example shows. The ensuing sell-off carried for 1000+ points.

10:40  In this case, double dojis indicate the end of the retracement.

12:10  Multiple patterns occurring simultaneously give additional importance and veracity to reversal signals. This example shows a doji on a volume spike bar and the penetration of a Bollinger Band.  The move following the signal ran for 1300+ points.

2:10  The 12:10 move up is mirrored on the downside at 2:10. A doji penetration of a Bollinger Band on relatively higher volume indicated the beginning of this 400+ point retracement.

2:50  The substantial volume increase in this case stopped and reversed the retracement. Volume increases and decreases are measured relative to the volume bars immediately preceding the volume bars in question.



  Example 2: 5 minute bar chart of S&P 500 (SPH8) on January 8, 1998Day Trading Chart










January 8th, 1998 was a cycling day that ended with a deep selloff that set up the 3000+ point drop the next day.

9:40 This doji, associated with substantially increased
volume over multiple time bars, resulted in this intermediate bottom.

12:45  A three tick new low 45 minutes after the previous 12:00 low indicated another excellent reversal candidate.

1:20  Twin Bollinger Band penetrations gave plenty of
warning to those willing to objectively observe price action.

2:15  This two tick new high showed us the beginning of a substantial (800+ point) selloff


     Example 3: 1-min bar chart of S&P 500 (SPH8) on January 9th, 1998.
Day Trading Chart

January 9th, 1998 was the fourth largest selloff in history.  The Dow closed down 222 points and the S&P closed down 3,200 points. 

On very volatile days, I pay more attention to shorter time frames - the price patterns and volume characteristics are, to me, much more apparent.  It is critical though, to resist over-trading when tracking price on very short-term price bars. I find it advantageous to occasionally look at the longer term bars for the larger perspective.

1:43  This one minute doji at what is essentially a double-top, showed us the end of this retracement.

2:00  Triple hit! A doji on increased volume, the penetration of a Bollinger Band, and the additional rise in volume was the beginning of this 2000+ point selloff

2:25 This fast one minute up bar immediately runs out of volume with no follow through and just as quickly reverses for a 1300 point selloff

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