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Critical Day Analysis

Our critical day analysis is all about trend reversals. We tell you when there is a high potential for a reversal of the short trend and we've been doing it since 1994 with an 80%* accuracy.

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Double Top/Bottom

When price peaks after a rise, and the decline that follows leads to another rise in prices to form a second peak at or about the level of the first peak, a double peak is said to have formed. A neckline can be drawn across the base of the two peaks. A neckline is simply a trendline and penetration through a neckline after a decline from the second peak is a good indication that the price of the tradable will continue to fall. Traders often allow for a 5% penetration through a neckline to avoid whipsaws. Volume is generally greater in generating the first top than in making the second.

A double top is simply two peaks. After the second peak is formed a breakout through the base is a signal of a possible reversal of the trend in prices. In the case of a double bottom, two troughs form and an expectation follows for the possibility of a trend reversal if the market price rises through the base.

Waiting for confirmation is important for trading double tops. Twin peak formations usually show a decline of between 10% and 20% between the peaks. Volume is usually higher on the left peak than on the right peak. The confirmation point is the base of the peaks. A breakout through the baseline is more convincing if accompanied by higher volume and predicts a continuation of the trend in that direction. Price projections can be made by determining the price difference from the neckline to the first peak and then subtracting that value from the price at the time of penetration from the neckline.

Price projections are estimates of the potential near term movement of the price once a breakout has occurred. When the price of the tradable is low, the best approach in making price projections is to use percentages. A percentage difference of 6% between the price at the first peak and neckline would translate into a projected price drop upon penetration of the neckline of about 6% of the price at penetration.

Notice that the low end of the peaks in the graph for Andrew Corp was around $10.50. The neckline penetration was about $22.50. In developing a price projection using percentage increases a technician would expect the price to near double after penetration of the neckline. After two potential whipsaw pullbacks the price headed higher reaching the $40.00 range within a few months.

To the right technical studies are examined in more detail to provide a sense of conformational evidence for traders of the critical day. Click on any of the terms to take a closer look at a technical discussion on that topic. All formations, patterns, indicators and technical tools fail at various times and so should only be used to build a body of evidence in forming a trading decision rather than being solely relied upon. There are a number of valuable studies that lead to intuitive understandings about price and volume but a strong compliment to technical analysis is an understanding of the trends and changes in the fundamentals and economic activity that ultimately lead valuation levels in the markets.

Walk through a critical day

The graphs show a price plot of the Dow Jones Industrials from Sept 28/00 to early November. The First graph ends on November 3/00, two days before an upcoming critical day on November 7/00. Our members looking at the market are expecting a trend reversal to occur due to the high rate of success in our research. Ideally a member will be using their own skills to judge the supply and demand changes, using technical and fundamental indications to confirm suspicions of a reversal, and trade accordingly.
On the second graph we see that the price action on November 6 was a bullish day, reversing the short trend so that the short trend leading into the critical day is now up. A critical day is an expectation of a reversal of the short trend that immediately precedes the critical day. In the case of the November 7 signal, given to members 3 days before, is an indication that the upward moving trend, recognized at the close of November 6 is expected to reverse direction.
On the third graph we can see that November 7 was a low volatility after a large gain on November 6 of about 160 points for the Dow Jones Industrials. The subsequent move over the three days following the November 7 signal saw the Dow Jones Industrials fall 376 points. The next day, November 13, the Dow Jones Industrials lost an additional 83 points with intra-day low a full 609 point loss since the open on the critical day.

Most recent signals

A closer view of the most recent signals. You can see the short trend immediately prior to a successful critical day, reverses coming away from the critical day. Often a failed critical day will indicate a stronger bias in the market for continuation of the trend that was in place prior to the critical day. A failed signal can therefore provide as much information and opportunity as a successful one. Take a look at tech studies to develop a sense of trend reversals and use.