One of the most useful tricks taught at the Hidden Pivot seminar is the “look-to-the-left” rule. To apply it, simply fix your eye on a rally peak, then move backward in time along the chart. If it turns out that the new peak has surpassed at least two prior peaks to the left of it, we can confidently infer that the rally has further to go. More bullish still is a rally that slightly exceeds a prior peak that is either visually obscure or which occurred so long ago that it is no longer on the radar of conventional chartists.

(Click on charts to enlarge)

In Hidden Pivot-speak, we say that such rallies have renewed themselves by creating fresh bullish impulse legs on their respective charts. In the chart above, when the shares of Merrill Lynch hit a high of 81.25 last April, they slightly surpassed the previous all-time high of 80.00 made more than five years earlier. Thus did the final gasp of that rally manage to conquer yet one more previous high – as well as the three others labeled on the chart. This feat – surpassing two or more prior peaks without taking a breather – quite often distinguishes strong rallies from those that are destined to fail. Viewed another way, we might say that any rally that is worth a damn should, with its final gasp, be able to take out one last peak to the left of it – and no matter if that last peak is visually obscure, or if it is exceeded by only a very small margin.

All of which brings us to the chart immediately above, of the E-mini S&P. As you can see, although the most recent rally surpassed two prior peaks, it failed by an inch to knock off the third, which is still the all-time high. This failure to conquer one last point of resistance hints of weakness, and although it is not corroborated by the cash index, which recently made a new all-time high, the divergence thereof is a yellow warning light for those who think the bull market is invincible.

To be sure, my unachieved 13045 target for the Dow Industrials is still a ways above these levels, and it implies that the bull’s day of reckoning lies further down the road. However, the fact that the divergence exists at all makes the rally suspect. Since all of the principles described above work in reverse, we should therefore look for bearish impulse legs on the intraday charts, as well as breached look-to-the-left lows that can tell us precisely when the major trend has changed.  

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London Seminar

A Hidden Pivot seminar in London appears likely, judging from the strong initial response.  If you’re interested in attending a two-day class there, probably sometime in the spring of 2007, please let me know via e-mail, including your contact information. The cost would be $1,500 USD.