SOS – Principle 1
Bottom reversal. A wide spread plus down bar closing on the low. The low and the close is lower than the previous four bars. Followed by an up bar on a wide plus spread closing on the highs. This arrives in a variety of versions but basically the first down bar is a shake‐out usually on so called bad news. The second bar is rapidly marked up to lock traders in (if you shorted) or out of the market if you wanted to buy the market. (people hesitate buying because it now appears expensive to the earlier price.SOS – Principle 2
Stopping volume. To stop a down move demand has to overcome the supply. The odd way supply and demand is evident here. As a market falls day after day a point will be reached when the herd cannot stand the losses so they all tend to panic at a similar time. If the price levels reached are now attractive to professional money they will step in and start buying. This activity causes a surge in volume as they buy and cover their short positions.
SOS – Principle 3
The Test. This is a very common SOS frequently seen just before an up move. Is also seen in a rising market after a minor SOW and indicates higher prices.
SOS – Principle 4
Down bars closing in the middle on reduced volume seen after any SOW indicates higher prices. This is a strong SOS in an up‐trend after a SOW because there is no continuation of the weakness. If there is no continuation expect higher prices.
SOS – Principle 5
A wide spread up bar closing on the highs pushing up and through an old top to the left. This is demand and an effort to go up. After this event the market usually rests or starts to react, you are now looking for indications of strength to confirm the strength.SOS – Principle 6
SOS – Principle 6
This is a very powerful indication of strength. First you see stopping volume (see principle 2). The market has a short rally only to fall again back down into the same area as the first high volume seen during the stopping volume. The volume is low. If the spread is narrow and or closing on the highs this is a strong indication of strength.
SOS – Principle 7
This is la variation of stopping volume which has arrived on 2 bars rather than on 1 bar. On the first bar supply was so heavy that professional money was unable to absorb all the stock dumped onto the market. This allows the market to fall on the next bar usually on so called ‘bad news’. This can be gapped down on the opening causing the panic. However, to close in the middle or highs indicates demand has overcome the supply.
SOS – Principle 8
The hidden ‘test’. This is a variation of the bottom reversal. If the market low has fallen below the previous 4 bars on a wide spread down closing on the lows and the next bar is up on a wide spread closing on the highs then this has the hallmark of a low bottom reversal and a sign of strength. However, if the low of the second bar is lower than the previous bar this adds to the strength on the assumption that the market had been marked down on the opening only to find that there was absolutely no supply, so the market quickly reversed on a wide spread closing on the high. If there is no selling at the lower levels then expect higher prices.
SOS – Principle 9
Selling climax. Wide spread down closing in the middle or high after a substantial down move has already taken place. The volume is ultra high. As a market falls day after day a point will be reached when traders will start to panic and encouraged by bad news will start to dump stock onto the market. If the market closes in the middle or high then professional money must have decided that the lower prices now looked attractive and will start to buy into the panic selling. The activity will cause the volume to be ultra high. This marks the low point of the market.
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