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The weekly (Illustration 8.5) and daily charts indicated this time frame as an important turning point. However, other than the fifty percent of the high price situation, and the fact that Polaroid moved back up to test this same price level in July of 1986, the monthly chart did not.
When the price of Polaroids stock hit 73 on the week of July 4th, 1986, the July, 65 puts were selling for 1/8, because they were going to expire two weeks later. Those options were at $6 on the expiration date. There are some high risk trades that can be exceptional. This one is a price multiple of 48, so a $500 risk would have returned $24,000. I dont want to recommend that type of trading for anyone. Its for the individual who wants to take such trades, and can feel good about doing it. Whatever you do, do not risk a large amount of money on such a trade. I personally traded an option series with a later expiration. Remember, trading is a business, and this type of risk, an "all or nothing at all" situation, should be played very lightly.
Look, again, at the monthly chart. Notice, the drive down in this stock, which was an extreme move from the high at 144, moves down for six months, spends three months on the side at fifty percent of the high price, and, then, gives an outside reversal month down in a move that is not ove r f r seven more months. Finally, it shows tenable support on the 1X1 angle up from zero and the date of the high. At this point, price finally found a bottom at about 1/10 of the high price, and although the stock was still well below the 2X1 down from high, if the correction down was not over, the company was going bankrupt. Polaroid took years to take out the 2X1 down from the high, which it did in March of 1978, and when that happened, you could say the correction down was over. Notice, when price does finally move through that 2X1 angle down from top, an acceleration up occurs. In addition, the high price in September, 1976, was fifty percent of the lower high in March, 1974, The high in September, 1978, was just two points shy of fifty percent of the high, in October of 1973.
Daily Chart and Turning Point Days
So far, for the most part, we have looked at the weekly and monthly charts, including squares, angles, and the cycle of years. The reason for this ia the major moves in the price of a stock will be indicated by the longer time period charts. If you are looking for major moves, you should make trading plans from the weekly and monthly charts. Once a plan is developed, the daily charts will be very useful for determining when to trade, or what days to look for positions. With this in mind, we will look at the daily charts and the turning points which develop from this work.
Lets look at an acceleration in price with the Citicorp daily charts. Illustration 8.6 & 8.7) Begin with the high on December 16th, The six day correction down shows support at a 1X2 angle from the October 25th low on December 24th, with the low and support being held the next day. Price had a strong close, coihciding with a 90 calendar day count from the September low, issuing a buy signal. On the 180 calendar day cycle from a July top (not on the chart), a high is found and price corrects for five days. A two day rally follows, and then price turns down at a 2X1 angle (a fast angle down from the top on January 16th. You would have been out a short term long position by this time. The correction, again, lasts for five days. Next, price turns up for four days and then gives a five day move down to the fifth of February, where a double bottom is shown 90 market days from the September Jow, and 30 calendar days from the high. This is a good buy point. Price movement down, in this five day correction, is considerably less than the previous five day correction.
After a considerably longer move up, the next correction down in prioe, is four days in length. This four day move down ends in a reversal day on February 24th. This, also, shows a minor square in prioe from the January 29 high to the level of the double bottom, on the 5th and 23rd, Price breaks and recovers the 1X1 angle up from the 2/5 bottom, a continuation signal for the up move.
Price fails on the 28th of February, at the old top, and a three day correction follows (March 5th), after which, price finds support on the fast moving 2X1 angle from the 2/24 low. Note, the corrections down, on 3/5 (on the fast moving angle) shows that a valid break out move may be starting.
With the fast angle showing support, and once again, being 90 market days from this time (the October 2th bottom), this setup is worth buying with a stop, 1/2 point below the level of the fast moving 2X1 angle up. The correction from the March 14th high is only one day, and again, support is found on the 2X1 angle.
By this time, we know we have an acceleration in price, and that we should see three Elliott waves in the drive to top. The next correction on the 21st of March 1986, is one day, but it is an outside reversal day and a sign of weakness. Price moves sideways into the 2X1 angle, and accelerates into the 27th of March.
Notice, on the Citicorp chart, the good turning point setups for March 27th or 31st, as well as, the excellent setup for turn on the 7th and 8th of April.
So, a considerable amount of information regarding timing and support levele can be gained from the daily charts, alone. Once again, I would like to point out, that for long term trades, and good knowledge of trend, the weekly and monthly charts are far more important than the daily charts.
On the Citicorp monthly chart, you will see two points circled, noted as "swing." (Illustration 8.8) Those points are
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