The 3×5 Card Market Analysis Technique

There are some people who can't give you a simple explanation to save their life. You just glanced over at your bookcase, didn't you, so you know what I mean.

Over the years I've looked for the simplest ways to filter trade possibilities, aiming to increase the likelihood of success of the trades I do make.

For example, I don't like to make bearish or short bets when the overall market is due to set a short-term cycle low. I've updated and shown the S&P 500 chart several times over the past year. Here is the chart I had in the August 23rd newsletter, suggesting that a cycle low was due in the S&P (the low did occur 4 trading days later):

Cycle analysis of this sort doesn't predict exactly when the low will be, or even if one will definitely occur within the near future. But over time, it averages out to be a good way to increase your chances of success by going with only bullish trades when a likely short-term cycle low has just formed, and going with only bearish trades when the market is likely due for a low within the next couple of weeks.

If you are wondering if cycle highs can be determined in the same manner, you will find a great deal of debate in various books and articles about that. Many analysts believe cycles can be determined only by the lows.

I say ‘it depends'. On a rising stock, index, or ETF, I usually focus on the pivot-point lows to identify the start/end of cycles. When the chart is going through a longer downtrend, I find the pivot-point highs more accurate for identifying cycles.

The other question I try to answer is ‘how far will this move likely go?', and here is where I will try to make it simple.

The S&P 500 formed a cycle low eight trading days ago. It was more or less on schedule from the late August cycle low. In general, I don't want to enter new bullish trades if the overall market (or the individual stock I'm evaluating for a trade) is due to roll over, that is, due to set a short-term cycle high and then head towards a cycle low.

There are two ways to look for an answer to this question. One is based on time. If the S&P (or individual stock you are looking at) averages about 6-7 calendar weeks per cycle, and it's been about 2-3 weeks since the last cycle low, then the market may be due to form a high followed by a pullback leading to the next cycle low (cycle highs are seldom centered between cycle lows – they tend to be close to the cycle end on up-trends and closer to the cycle start on down-trends, but this is not an exact science).

The other way is to analyze distance. Again, not an exact science, but it doesn't have to be. I was looking at the S&P 500 chart. I made sure it was in Logarithmic' scale mode. I won't go into the reason why here other than to say it makes this technique slightly more accurate. You can Google ‘why use logarithmic scale for stocks' if you are curious to learn more. But to be truthful, this is a very rough, simple technique for getting a feel for how much more of a move may be coming in a stock, and it works well enough in Arithmetic chart mode as well as Logarithmic mode.

I noticed that the 6 most recent up-moves off a cycle low, for the S&P, moved approximately the same distance on my chart screen. I grabbed a 3×5 index card to use as a simple ruler. I noted that the late November 2012 through late December move covered two ‘lines' on the 3×5 card:

I measured the next period, the late December 2012 through late February 2013, and found roughly 2 lines of movement again:

I went through the next 3 cycles and found they too gained about ‘2 lines of a 3×5 card' on each up-swing.

My ultimate goal was to evaluate the recent upswing. Using my 3×5 card, I see it has traversed about two-thirds of a ‘2-line' move. Of course there is no guarantee this move will be similar to previous moves, and therefore will stop around the ‘2-line' point. But because of the human nature factor and the psychology of crowds, market swings can often be regular and rhythmic.

With the S&P 500 having already moved about two-thirds of other recent moves, I feel the probabilities of further success with bullish trades have diminished for the near future. I can, and will be looking for individual stocks that are just coming off cycle lows or the bottom of trading ranges. After all, this current upswing can go quite a ways – it doesn't have to stop around the ‘2-line' point. But the odds of a significant further up-moves in stocks that already have logged most of their typical moves has fallen. The odds of an overall market pullback are increasing. I don't like to trade against the odds.

Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day.  To find out more, type in

By Gregg Harris, MarketTamer Chief Technical Strategist

Copyright (C) 2013 Stock & Options Training LLC

Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.

Gregg Harris is the Chief Technical Strategist at with extensive experience in the financial sector.

Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.

As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.


Related Posts


MarketTamer is not an investment advisor and is not registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory Authority. Further, owners, employees, agents or representatives of MarketTamer are not acting as investment advisors and might not be registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory.

This company makes no representations or warranties concerning the products, practices or procedures of any company or entity mentioned or recommended in this email, and makes no representations or warranties concerning said company or entity’s compliance with applicable laws and regulations, including, but not limited to, regulations promulgated by the SEC or the CFTC. The sender of this email may receive a portion of the proceeds from the sale of any products or services offered by a company or entity mentioned or recommended in this email. The recipient of this email assumes responsibility for conducting its own due diligence on the aforementioned company or entity and assumes full responsibility, and releases the sender from liability, for any purchase or order made from any company or entity mentioned or recommended in this email.

The content on any of MarketTamer websites, products or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options and other securities involves risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities is not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options. The educational training program and software services are provided to improve financial understanding.

The information presented in this site is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing in our research constitutes legal, accounting or tax advice or individually tailored investment advice. Our research is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive or obtain access to it. Our research is based on sources that we believe to be reliable. However, we do not make any representation or warranty, expressed or implied, as to the accuracy of our research, the completeness, or correctness or make any guarantee or other promise as to any results that may be obtained from using our research. To the maximum extent permitted by law, neither we, any of our affiliates, nor any other person, shall have any liability whatsoever to any person for any loss or expense, whether direct, indirect, consequential, incidental or otherwise, arising from or relating in any way to any use of or reliance on our research or the information contained therein. Some discussions contain forward looking statements which are based on current expectations and differences can be expected. All of our research, including the estimates, opinions and information contained therein, reflects our judgment as of the publication or other dissemination date of the research and is subject to change without notice. Further, we expressly disclaim any responsibility to update such research. Investing involves substantial risk. Past performance is not a guarantee of future results, and a loss of original capital may occur. No one receiving or accessing our research should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence, including carefully reviewing any applicable prospectuses, press releases, reports and other public filings of the issuer of any securities being considered. None of the information presented should be construed as an offer to sell or buy any particular security. As always, use your best judgment when investing.