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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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Trend

Generally it is a good idea to consider that there is a continuance of the general trend (movement) of prices until there is an opposing force that changes the trend. One of the basic principles in technical analysis is the identification of trend. Moving averages, trend lines, channels, envelops, price patterns, momentum indicators in fact most technical tools in some way relate to the various trends in price and volume. One of the key aspects of trading is the early identification of trend reversals and to be able to develop a confidence level with regard to a continuation in the current trend in prices. Technical tools can help in this regard. Some basic concepts that relate to trend are as follows.

Psychology - people resist paying more for a stock than others unless the stock continues to move up. People resist selling a stock for less than the price others have been getting for it unless the price continues to decline. People who purchase the stock at the top of a trading range have a strong inclination to wait until the price comes back before they get out.

Longer term growth expectations of the market are often represented through longer term valuation support/resistance areas. The longer term market can be analyzed using a regression analysis in channels, illustrating support and resistance levels that are based on longer term fundamentals and economic activity and the fundamental forecast into the future.

Trendlines help in trend identification and draw witness through trendline penetrations of reversals of the trend. Drawing a trend line is the method of connecting lower troughs of an up trend or two peaks of a downtrend so that no breakage or penetration of the line occurs between the two starting points.

The longer a stock has been moving in a given trend, the stronger the trend is likely to be. A strong long term trend will take a longer period of time to reverse than a short trend. A way to track trend and provide potential support and resistance levels is through the use of channels or trading bands. These are lines set apart from a central moving average that help identify both trend and price projections for future price action.

Prices fluctuate daily but over a period of time, a general sense of the movement of prices can be identified and segmented into what is called trends. A trend is the overall direction of prices for the period being analyzed. Longer term trends can be completely different in direction and quality than short term trends on the same security or price data over the same period. When looking at the volatile nature of price it can be a good idea to look at the peaks and troughs to identify support and resistance levels in the trend of prices being analyzed and to help identify the trend itself. A series of rising peaks and rising troughs is indicative of a rising trend of prices. Conversely, a series of falling peaks and falling troughs indicates a falling trend in prices.

A trend reversal is simply when the trend changes direction, where an up trend becomes a downtrend and vice versa. The longer a trend has been in place, the longer it takes for a reversal of the trend to occur. This makes sense when you consider the psychological and fundamental basis in place for longer term trends takes time for collective changes in this basis to occur. Price action in the market will mirror how the underlying perception of fundamental trends and the trend in investor psychology is supporting or resisting the current trend in prices.

Shorter term trends can undergo a reversal faster and involves less requirement for a change in the basis of the fundamental and psychological aspects that ultimately determines the trading decisions of the broad market. For shorter term trends, the steeper the angle of ascent or descent, the less sustainable the trend is. Trend lines are a good tool to use in looking for triggers for navigating the short term market as they help identify the trend in place and allow for early warning of changes in supply and demand that may indicate a potential reversal of the short trend. Our critical days are marked the graph below. We provide these to members usually by three days. A critical day is an expectation of the short trend of the market leading into the critical day to reverse coming away from the critical day. Take a look at short trend and the critical day for a more in-depth explanation of a critical day.

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.

Tech Studies

Comparative Relative Strength

Congestion Pattern

Consolidation