Both Trader Vic 4-Day Rules In Play
Principles of the Stock Market

Blog Subscription Form

  • Email Notifications

Have You Seen This?

Have You Seen This?

Technically, the market looks out of steam.  Whether this latest two day fall back is the end of the bear market rally or just a normal “shake out” of weak holders on the way higher is open.  Remember I thought the market had exhausted itself back two weeks ago when I saw Rising Wedges in a few indices.  That would have meant a temporary fall back to prices prevailing where and when the wedges began forming, about April 14th.  Then, confounding me, stocks took off upward once more, numerous indices posting four day or more straight sequences upward, kicking in “Trader Vic’s” (Sperandeo; get his two great 1990s books on or elsewhere) very helpful 4-Day Rule or more accurately his 4-Day Corollary Rule.  The corollary rule states that “…after a long move of intermediate proportions,” when a trend goes up four straight days or longer in the same direction as the trend, the first day down indicates a trend change.  Well, right after that up sequence happened in the S&P 400 Midcap and numerous other indices, stocks turned tail and some indices have now fallen for four straight days.  This additional four day sequence, this time downward, is Vic’s 4-Day Rule.  Which just essentially says the same thing, that the odds of a trend change are high.  Schwartz View:  Makes sense to me, four or more days up followed by four days down (in the S&P Smallcap, Nasdaq Composite and Nasdaq 100).  Whew!  A head spinner, that’s for sure.  Net, net, I would just heed the market’s communication and cut back some.

Posted 05-22-2008 9:15 AM by Richard Schwartz