Five Things You Need to Know: The Case Against the Low
Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:
Let's cut the chase, skip to the end, get to the nut of it: have we seen the low in the stock market for this year, or not? Even if you are not a technician, below are four charts worth thinking about.
First, let's go over very quickly the numbers you will see on each chart. These numbers are patterned expressions of selling (or, on the upside, buying) exhaustion that were identified by Tom DeMark more than 30 years ago.
This particular pattern we are discussing is an expression called TD-Sequential, and it consists of two components, a setup and a countdown period. Numerically, the setup is complete at 9, the countdown at 13. These patterns help identify potential selling or buying exhaustion points. They are probabilistic and dynamic, because markets themselves are probabilistic and dynamic.
Now, what do these 9s and 13s really mean? Because we are looking for a market low, let's focus on TD-Sequential Buy Setup and TD-Sequential Buy Countdown.
The TD-Sequential Buy Setup consists of 9 consecutive closes that are lower than the close four price bars earlier. The criteria for "perfecting" the sell setup is that the LOW of price bar 8 OR 9 be below the low of BOTH bars 6 AND 7.
Once a Buy Setup is in place, the TD-Sequential Buy Countdown can then begin. The difference between Buy Setup and Buy Countdown is that Buy Setup compares the current bar's close with the close of the bar four bars earlier, while Buy Countdown compares the current bar's close with the LOW two price bars earlier. Also, unlike Buy Setup, Buy Countdown need not occur on CONSECUTIVE bars.
That is the quick and dirty overview of TD-Sequential. It is a bit more nuanced than the broad overview I've given above, but for our purposes in looking at the next four charts, that at least explains that 9s are completed Buy Setups and 13s are completed Buy Countdowns.
On to the charts.
The question is, Have we seen the low for the year? Based on my interpretation of the current weekly chart of the S&P 500, and comparing it to other periods where the market made significant lows (1974, 1987, 2002), I think there is a fairly significant probability that we have not.
Below is the weekly chart of the S&P 500 between 1973-76. As identified on the chart, there was a TD-Sequential Buy Setup and, ultimately, a Buy Signal that registered very near the low of 1974.
S&P 500, Weekly, 1974 
CLICK TO ENLARGE
Below is a weekly chart of the S&P 500 between 1985 and 1988. As identified on the chart there was a TD-Sequential Buy Setup at the low. It did not progress to a full countdown, but the initiation of a sell setup (the green 1-2-3 above the bars) was enough to suggest the Buy Setup marked a meaningful possible low.
S&P 500, Weekly, 1987 
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Below is the weekly chart of the S&P 500 between 2000 and 2003. Again, as identified on the chart, a Buy Setup registered in July 2002, marking an important low, with the Buy Countdown occurring in January 2003 at a slightly higher level.
S&P 500, Weekly, 2002
CLICK TO ENLARGE
Now, what about the present? Below is the weekly chart of the S&P 500 at its current juncture. Here is my concern. So far, we have not yet recorded a Buy Setup, and are currently on bar 7 of potentially 9. Moreover, in order to "perfect" this Buy Setup (remember, bar 8 OR 9 must have a low that EXCEEDS the low of both bars 6 AND 7), a new low must be made by one of the bars in the next two weeks (next week would potentially be bar 8 and the following potentially bar 9).
S&P 500, Weekly, Present
CLICK TO ENLARGE
What If I'm Wrong?
This view is complicated by numerous buy signals on many of the daily charts of the major indices. But markets, the battles between buyer are seller, are about continually competing timeframes. I believe, looking at these significant market lows, longer-term timeframes tend to have the upper hand at significant market turns. Therefore, my conclusion is we have a high probability of making a new low within the next two weeks.
But I may be wrong. If so, then I do not mind buying stocks at levels higher than today because if I am wrong about the market's present state, then I will at least be entering the market at a point where risk is lower than I believe it is currently.
If you would like to learn more about DeMark price exhaustion techniques, I recommend a new book that was recently published by Jason Perl, appropriately titled, "Demark Indicators."
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More so than any other time, I am finding symmetry to the downside with upside moves...
That is, crashes are behaving like rallies in reverse when they would not otherwise (as a result of short covering/squeezing during such volatile times)... Relatively, long slow, short bar intra-day declines with little to no let-up...
I am also finding that multi-day developments are happening in single days - often cycling through what I would expect for 3 days in the 3 time blocks between afternoon, overnight and morning sessions (in futures).
I guess what I am saying is that this is one elaborate, curve-fit approach you seem to be describing and frankly from a 1000ft and in the context of the short bans, I really have to wonder what the short bans and recent time compression are going to do to it?
I am not basing that on any direct analysis of this technique, but rather the damage the interventions have done to my various assumptions, approaches, strategies, expectations...
More at http://savagezen.blogspot.com
(yes, I know, I'm shameless)
Also, have computerized selling and associated algorithm's changed the dynamics of this equation?
The change in volume since the implementation of computerized trading is really amazing to observe; especially 800 million at relative low of 1998 to 11 Billion on October 10th low this year. Did that peak in volume indicate the initial selloff?
Looking at the 1974 and 1987 lows versus volume, our current low won't be reached until volume is around 5 billion.
Thanks for the TD sequential insight, I agree we have not reached a low.
I think Buffet said "Buy" to get the crowd to purchase a false low; then when the real low hits he'll quietly be buying a whole lot more than he is now.
Looking at past lows before recoveries, they appear to reach the bottom at the point where the trading volume was before the high volume selloff and crash.
A cursory look at the DOW and I'd guess a volume of approximately 5 billion?
omfg
The first step was the end of the "free credit report dot com" commercials about a week ago.
Look for socio-psychological trends along with the numbers.
Hopefully, we avoid the Katrina and L.A. Riot situations in the inner cities...
Kevin, I've read this article a dozen times, looked at the charts provided and look forward to learning more about the TD Sequential charting theory. I found it very interesting. I realize there are many nuances to it as you mentioned that you didn't go into detail about and I appreciate you keeping the initial lesson "simple". Thanks to the Minyanville core for once again taking the time to teach the masses.
I'm told they have an old saying in Germany. "The dumbest farmer grows the biggest potatoes." KISS works, complexity fails.
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