Those of you using my Fractal Stock Grapher app aren’t surprised that the rally has paused over the past week because the Fractal Dimension Index (FDI) has been flashing an end-of-trend signal. See the black arrow on the screen-shot (click to enlarge):
We haven’t had a signal this strong on the daily chart since last summer. Here is a chart that goes back farther using my FDI indicator for TradeStation – look at the green arrows:
Last summer’s downtrend did indeed come to an end as soon as the FDI gave the signal. But what about the fate of this year’s uptrend? It is indeed long in the tooth and overdue for a correction. However, the FDI only tells us that the trend is likely to end. The market could just as easily go sideways for a while.
I don’t want to be bearish here because the economy is improving, and federal withholding-tax collections are on fire. Yes, Europe is shaky again, but don’t forget that the Fed and the ECB have the money spigots wide open, blasting liquidity onto the fire. If you study this Contrary Investor chart, you will see that it doesn’t pay the be bearish while the spigots are open.
And it is also an election year. The Republican candidates have vowed to chop off Ben Bernanke’s head, so he has an incentive to keep things bubbly until November. My guess is that a market plunge caused by another European crisis will be another buying opportunity, just like they all have been over the last three years.
if you see SP fractal end of trend HOW ABOUT THE SIGNAL FOR AAPL apple, look at daily monthly and weekly?
Bob,
True, but a single stock can do crazier things than an entire market. Maybe AAPL is making a blow-off top, maybe not; but even if it is, it’s impossible to say where it will top out. Shorting SPY would be a million times less risky than shorting AAPL right now.
Last summer, I used the FDI to predict a blow-off top in gold:
http://www.trivisonno.com/fractal-end-of-trend-signal-gold
That was a long-term call, and turned out to be right. But in the short run, gold spiked higher. Now, if you had waited a few weeks for gold to print a double-top pattern, you would have had a much easier time shorting it.
And the same is true with AAPL now. If it is getting ready to make a top, it would be wise to wait patiently for a reversal pattern to form on the chart before trying to cap the geyser.
Matt
I have a target price of 542.24 on AAPL. That’s a measured move (2.0x) off its last correction. Of course, it could go higher, to 600, which would be a Fibonacci 2.618 extension. Matt’s got very good advice on shorting such a blowoff stock.
Hi ADMIN
its 2 days now, and when we all posted, AAPL had not “collapsed” (525 high to 486 low) yet, and sp had not also (1357 to 1333) “collapsed” or convulsed or retraced.
alas after 2/16 we now know it was just a hiccup.
i would like to know does this invalidate the fractal dimension index end of trend IN YOUR VIEW, since you successfully used “fdi” to TOP GOLD, how do you see this indicator working on “sp”
thanks again for replies.
bob,
The SPX is only a few points away from the May 2, 2011 peak. Normally, a long-term peak like that isn’t surpassed without a struggle.
Matt