Thursday, August 22, 2013

SPX (via /ES futures) is showing a nice Bernoulli channel, and Support at B50

On Aug 12, we posted that our proprietary bond indicator was indicating a toppy market, and we thought a 6% to 8% correction was likely.

It then banged 1694 the B100 channel line, and promptly dropped to 1631, a 63 point drop.   That was only a 3.7% correction, but still a pretty good call.

6% would be a drop to around 1600, and that would coincide with the Main Bernoulli Channel or the B0 line.   
 This Bernoulli Channel indicates the slope of the advance for the last five years.  This morning we are at the Bernoulli 50, the mid-channel line.

That is a powerful one.    As per crazy Oscar, falling in love with the down side here could be hazardous to your account value.  Although nimble traders could use this pop to 1648 as a short position hoping for the 6% correction and 1600.   We haven't seen massive volume so that tells me the market didn't work over enough bulls.  

A tight "ping" on the Bernoulli 75 channel line lends credence that this channel is very much alive and "correct"

The sloughy support at the B50 could be real support.


  1. Interesting construction. Is this a technique of your own creation? I can find references to a different kind of "Bernoulli channels" in network theory and some use of the phrase in fluid dynamics, but a quick search didn't uncover anywhere but here using the word pair in a financial market context.

    A couple of previous posts with bits and pieces of the "Bernoulli channel" idea were searchable, but left me curious for more detail--is your methodology for constructing the original channel documented anywhere?

    Have you fiddled with extending the channel above/below ala Andrews Pitchfork action lines? A seeming adherence to a parallel set of pink lines in the Summer 2009 until pre-flash-crash period caught my attention:

    Thanks for the original post & any additional info you can provide!

  2. Yes, it is my own construction, Bernoulli was not just a wicked good engineer/scientist but a numerologist using ratios and other tricks to make numbers do amazing things, I am using an idea from him to plot parallel channel line extensions. Fibonacci is "horizontal" but the real world works as movements within trends going up or down, and Bernoulli channels capture that reality much better.

  3. Haven't used the Pitchfork, only to turn compost.

  4. > Fibonacci is "horizontal" but the real world

    How very fitting. It was precisely the curiosity about whether anyone was using anything like this which navigated me here to begin with!


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