We’ve spent some time in person discussing “magnet” or “density” points but there hasn’t been any data thrown up on the blog. Given the hooplah over yesterday’s bounce (anybody smell a dead cat?), I thought I’d use it to take a closer look at these little buggers. For example, why did the market, obviously trending up all day, stop where it did? Could a trader have gone into the day with any information that could have helped in making decisions? Let’s see.

Here is a chart showing the profile of the September Mini Dow Futures contract (because I have easy access to futures data at the intraday level needed to do this) as of the close on 7/18, before the big rise. Let me emphasize that last point: BEFORE the big rise. In other words this was information available to a would-be trader going into Wednesday morning. Normally, I build these with 30-min. data because it seems to provide the best resolution but I couldn’t get it going back far enough to be useful. So I went with 90 min. data. In the big picture, it doesn’t make a difference. Now go ahead and look at the chart. Go on. Don’t be scared. I’ll be right here when you finish.

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Update: I rotated the axis of the image to match the normal way of thinking about price as “up” or “down”. I also removed after-hours trading which, because price tends to just sit in one place for a long time, distorts the picture a little.

Back? Didn’t know charts could talk, did ya? Anyway, has it hit you yet how FREAKIN’ AWESOME this chart is? Do I need to remind you that this chart was not made after the fact and those 2 huge humps where price reacted on 7/19 were in already in place days before? Now admittedly, there isn’t anything (yet discovered) about this chart that would have foretold that the market was going to go up like it did but it sure as hell knew where it was likely to stop if it did. This has potentially huge implications for profit taking for longs. Or, perhaps, once the momentum was recognized, you could have more easily measured the potential remaining in the move. I mean, haven’t you ever second-guessed a momentum move, wondering if it might be too late to enter and grab a piece? While it’s certainly worth the effort to search for predictive possibilities to this type of analysis, it’s already pretty fascinating to see the more reactionary support and resistance at work. This isn’t your pappa’s tired, old support and resistance. It’s entirely possible that the markets future is, to some degree, mapped out ahead of time. Now, surely, some input from the news and uncertainty goes into the mix also but imagine that, at the very least, the obstacle course is already set.

For me, these kinds of charts have almost completely replaced the traditional barchart as my way of viewing the market. It makes more sense to me that the market doesn’t see itself as moving through time like a barchart implies. Instead, I think the market just goes “What price am I now and how many of you have trades and orders lingering around at this price?” I’ll leave it here for now and look for some more cool charts to share. In the meantime, ponder the coolness of having this information before the market did and the possibilities inherent in harnessing it more directly. If I could only harness the lightning, channel it into the flux capacitor…