(Click on image to enlarge it)
(This is Part 8 of a series. Go back to Part 7.)
The first NMC Zero Hit takes place in Nov. 2002, and is a cross kiss (CK) Zero Hit (labeled NMC CK ZH on the price bars). As you know from other Ocean chart examples posted here at the web site, the cross kiss Zero Hit is one of the most powerful Ocean formations that exists, and significant weight should be placed on its occurrence.
Then about 6 weeks later, in late Dec. 2002, another unusual and very important technical setup develops. The NMC2 and NXC make simultaneous bullish cross kiss Zero Hits, followed by an entry in early Jan. 2003. In general, an NMC2 Zero Hit normally carries a bit more weight that does an NMC ZH, and this is especially true when it’s of the cross kiss variety. In fact, many new bull markets are first identified via this formation (and bear markets via the NMC2 cross kiss from below formation).
What makes this particular NMC2 cross kiss ZH so important is that it is coming in conjunction with an NXC cross kiss ZH. At times when an NMC ZH occurs there may be an NXC Zero Hit taking place at the same time, and usually this increases the validity of the NMC ZH. However, it’s quite unusual to see NXC Zero Hits forming in conjunction with NMC2 Zero Hits, and especially when they are cross kiss Zero Hits.
There is also one last clue provided by the TX lines that deserves mention. Note the point labeled 1x where the –TX is above its upper SD band, and the +TX is below its lower SD band. Then a pivot is made by the TX lines, followed by a crossover of the +TX (green line) going above the –TX (red line) in Dec. 2002, followed by each of them crossing their CMAs in Jan. 2003. The TX formation, along with an extremely low BTX score, and prices having risen above the STX were potent evidence of underlying strength in their own right from an Ocean Plus perspective.
Note additionally that there was yet another NMC2 and NXC Zero Hit formation in May 2003. Having one occurrence of an NMC2/NXC ZH setup is rare enough, but to see two of them back-to-back within a 10 bar period is extraordinary!!! When a pair of NMC2/NXC Cross Kiss Zero Hits occurred within a short time window in conjunction with the Ocean Plus tools generating their own very bullish setups, it was probably the earliest possible technical evidence that a new and very powerful bull market was getting underway!!
Now let’s go back to the primary 2-week Ocean Plus chart for just a minute. Note that after BTX dropped below 35 (pt.. C) it remained below 35 for the next 18 months! However, beginning in late 2002, the standard deviation lines of BTX begin to pinch together (pt. D), demonstrating to us the extremely low volatility of the market, with the implication that when it wakes up, there should be a substantial move.
The next noteworthy event delivered by the Ocean Plus tools unfolds in late Aug. 2003, when BTX rockets above 35 (pt. E), signaling that a new trend is in force. Note also the fact that it had been buried below its lower SD line in the weeks leading up to the predictable explosion due to the SD band pinch. The TX lines also confirm this new advance as the +TX begins to move up and exceeds it prior peaks made during the trendless environment of the prior 18 months. This is shown as pt. D’, with the prior peaks during the low BTX period labeled as pts. 1 and 2.
When the dominant TX line breaks out to its own new highs, the implication is that the trend is beginning to accelerate. Remember that during this same time period of late August, the monthly BTX was experiencing a large SD band pinch, and we said that a significant new trend could be expected soon. The breakout of the BTX above 35 here on the 2-week chart is the early warning of the birth of that new trend.
In the monthly analysis we had also discussed that abnormally low BTX scores and/or BTX remaining below 35 for extended periods were usually events that foreshadow significant moves. Both of those conditions were met in mid 2003.
As anticipated, prices then begin a rather ballistic 6-month advance, moving from 80 cents at the time of the BTX breakout (back adjusted) to $1.38 at the BTX pivot high in late March 2004 (labeled pt. F). That’s a 58 cent move, or $14,500 per contract. It’s also better than a 70% increase, which for a commodity is an historic percentage gain in such a short period of time!
At the peak in March 2004, BTX generated a score of 84, which is extremely high and a warning that any turn down in the BTX should mark at least a short-term termination in the advance. Also remember that the monthly BTX and +TX lines were generating peaks during the month of March, so once again we have dual time frame agreement.
Note also the behavior of the +TX and –TX lines here on the 2-week chart. At the top of the spring 2004 advance, the +TX line peaks out above its upper SD band (pt. E’), signaling the likelihood of a pause in the advance. There is another very important pattern that forms in the –TX line as the +TX is peaking. Notice the extreme SD band pinch of the –TX line (labeled pt. 3). When one TX line is at a high absolute level, and is exceeding its upper SD band, and the other TX line is well below 20 and in a band pinch, you can be fairly certain that a market turn is setting up. In fact, we’ll see it again later at the top in 2006!!
Now let’s discuss the STX stop during the trending advance from late 2003 thru early 2004. We see that as BTX began to rise from its mid 2003 lows, the STX began to very accurately track the price action as a trailing stop. Even at this time frame alone, the STX proved to offer a very well timed exit in April 2004 (shown via the arrow on prices).
Note again that this STX stop was hit just after the BTX had made its first turn lower, and just as the TX lines were crossing their CMAs. This is a pattern that we see on almost all markets and all time frames and can be very helpful to identifying significant pauses or turning points in the market.
One other point to make about the STX concerns looking to lower time frames for even better potential exit locations when BTX scores dictate a likely turning point in the market. Just as we saw that this 2-week chart provided a much better exit than the monthly when the monthly BTX exceeded 50, we could employ the same logic and look to a lower time frame.
Here at pt. F, the BTX is at an extreme of 84 (and had been above 60 since Nov. 2003!!) indicating an imminent pause or reversal. If the STX exit provided on this chart alone isn’t enough to please you, imagine what rolling down to a weekly chart for the STX stop would look like. In fact, when we examine the weekly time frame, we’ll look at the STX stop during this period.
An interesting event unseen on this chart at the time of the STX exit was also occurring with the basic Ocean tools. Let’s take a look at it.
(This is the end of Part 8. Go to Part 9.)
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