An Outsider View

OK Folks, Earlier this evening I gave the conventional view of a sophisticated chart reader.

The market is going up to test the January highs. Right?

OK. Now for the renegade view.

Have a look at this chart of BHP. This is one of my own pet constructions. But it shows a blue horizontal support line which was broken to the upside in mid-July, survived the decline in late October, and now has broken down completely.

This suggests there's something fundamentally awry with the forces in the market.

How is this thing constructed?

Well - it is fairly complex.

First - it uses Alexander Elder's method for determining the "force index" Alexander Elder is one of the "new" faces in technical analysis. The force index is an oscillator based on the difference between today's price and yesterday's price multiplied by the volume today.

(Today's Price - Yesterday's Price)*Today's Volume.

It's a very neat way of understanding the force occurring in a market. If you get a big move up on light volume, you get a much lower move up than if you had a big move up on heavy volume.

What I've done is to take an 8-Day Moving Average of this figure and a 21-Day Moving Average of this figure - discarded the original figures and shown only the Moving Averages.

This gives a short term and medium term trend of the force in the market.

Clearly, the force in the market since late January has been particularly negative - and gives a quite different image from just following price action alone.

Until the green line crosses above the blue line, I'll consider the current market action to be a counter-trend move against the major force of the market which is bearish.

Cheers

Red