A rare multiple tramline set-up on the Dow

published 24 May 2012

It's not often I write three days in a row. But the markets are thrilling right now and there are lessons to be learned.

So this is a very brief follow-up to yesterday's post on the Dow.

Today, I thought you'd be amused by this very unusual case where six tramlines are in play on the Dow. This is very rare.

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Yesterday, I drew a tramline trio, marked T1, T2, and T3.

As the market fell hard in the afternoon, I could draw in more tramlines as usual, each one equidistant from the previous one.

Note how the market sliced through all of them including the most recent T4 and T5 but is respecting their placement, as every time, the market has come back for a kiss (blue, yellow and red arrows).

(Click on the chart for a larger version)

As I wrote this yesterday, the market had collapsed to hit T5 on the nose. The above chart was taken at around 3:30pm yesterday.

And here is the later chart showing the drop to yesterday's low right on T6. Remember, I could draw T5 and T6 when T1, T2 and T3 were in place!

(Click on the chart for a larger version)

Also remember, tramlines are targets, but not all tramlines are turning points.

Note also the attempt to kiss T5 after T6 was achieved. To protect profits, stops could be placed above the high marked by the green arrow.

So where now for the Dow?

Here is the situation this morning following the sharp late-day rally:

(Click on the chart for a larger version)

The rally carried right to the Fibonacci 76% retrace, at 12,508 another superb Fibonacci target hit to add to all those I have shown recently. And profits were locked in on the short trades taken at the 12,570 level.

Now the market is consolidating as I write. And note the possible A-B-C form to the rally, suggesting it may possibly have ended.

But with sentiment extremely bearish, there may be one more surprise' pop to the upside. To me, odds are even. But I would like to see a proper A-B-C, which would be achieved with a pop above 12,500. Will I get it?

If you're a new reader, or need a reminder about some of the methods I refer to in my trades, then do have a look at my introductory videos:

The essentials of tramline trading

Advanced tramline trading

An introduction to Elliott wave theory

Advanced trading with Elliott waves

Trading with Fibonacci levels

Trading with 'momentum'

Putting it all together

Don't miss my next trading insight. To receive all my spread betting blog posts by email, as soon as I've written them, just sign up here .

John is is a British-born lapsed PhD physicist, who previously worked for Nasa on the Mars exploration team. He is a former commodity trading advisor with the US Commodities Futures Trading Commission, and worked in a boutique futures house in California in the 1980s.

He was a partner in one of the first futures newsletter advisory services, based in Washington DC, specialising in pork bellies and currencies. John is primarily a chart-reading trader, having cut his trading teeth in the days before PCs.

As well as his work in the financial world, he has launched, run and sold several 'real' businesses producing 'real' products.