(Click on image to enlarge it)
(This is Part 5 of a series. Go back to Part 4.)
After an initial 4-month breakout thrust into the spring of 2004, BTX reached a peak of 56 at pt. F and then began a multi-month high level consolidation. Note that price action remained bullish, although the rally was more muted into mid 2005, where BTX ultimately pulled back to the support of its center moving average at pt. G. The behavior of the BTX standard deviation bands just after pt. G is also of interest. The BTX SD band pinch that occurred from June thru Sept. 2005 offered a warning that a major change in the trend dynamic was likely to occur.
The anticipated change in the trend characteristic (due to the SD band pinch) could result either from an acceleration or a diminishment in trend. The pivot low in BTX at pt. G, coming at the precise support level of the center moving average, combined with the pivot low in the +TX line at G’ (along with its own SD band pinch) should have tipped us off that the trend was due to accelerate. Once we migrate down to the 2-week time frame, the proper identification and analysis about this acceleration point will become very clear.
Note also that the +TX and –TX lines remained well separated throughout the advance from late 2003 into mid 2005, and except for a brief 2 bar period at pt G’, the +TX line remained above its center moving average, indicating the continuance of the bullish advance. Once the +TX created the pivot low at pt. G’, and then rose back above its center moving average, the bull trend was once again clearly indicated by the BTX tools. Again, the clarity of what was happening during this period will be quite evident when we roll down to the 2-week time frame analysis.
Note that after the advance resumed in mid 2005, BTX scores steadily increased from June of 2005 (labeled pt. G), reaching an extreme reading of 82 as of May 2006 (labeled pt. H). BTX had remained outside its upper SD band throughout the advance, and given that it had risen to an absurdly high level of 82, a violent downturn in both BTX and prices themselves could be anticipated.
Let’s now refer back to the information being supplied by the STX stop during the persistent trend throughout 2004, 2005, and into May of 2006. Once prices reestablish a trend mode (at pt. E), the application of the STX becomes beneficial once again. Note that except for a minor penetration of the STX in mid 2005 (shown as the solid triangle on the price bars), even at this very high time frame, it tracked the trending rally from late 2003 into the 2006 top.
Note that the STX remained very close and responsive to the price action throughout this period, even into the parabolic portion of the move from mid 2005 thru the ultimate top in May 2006 when BTX generated a trend score of 82 at pt. H. The STX stop remained well positioned to “lock in” profits right up until the bar prior to the ultimate high bar of 5/31/06.
However, as discussed previously, when BTX begins to generate trend scores in the 60’s and 70’s, and in this case the low 80’s, we are being warned of a possible pause or reversal of prices, and the correct response is to ratchet down to lower time frames, looking for evidence of a peak in prices and an even better responding STX where more of the open equity can be pocketed.
When we move our analysis down to the 2-week time frame, you’ll see just how accurate the STX was in allowing us to exit with the maximum open equity still available to us.
(This is the end of Part 5. Go to Part 6.)
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