Stocks & Commodities V. 9:4 (139-139): Merrill Directional Patterns by Arthur A. Merrill, C.M.T.

Merrill Directional Patterns

by Arthur A. Merrill, C.M.T.

an we get clues to price performance from the swings of prices in the last hours of the preceding day?

If we ignore volume and the amount of change, the direction of the swings of prices can be summarized by a simple plus or minus and analysis is simplified. I've modestly (!) labeled the classification "Merrill directional patterns," in hopes of some immortality. If we consider the direction of the swings in the last four hours, there are 16 possible patterns (Figure 1). If we consider only the last three hours, there are eight possibilities (Figure 2). I asked my computer to consult my data bank, which has hourly changes for every day in the last 19 years, and to report back to me the number of times the market rose on the day following each pattern, and the number of times the market declined. The results are in Figures 1 and 2. For example, consider the four-hour pattern number 3. Prices rose between noon and 1 p.m., then rose again to 2 p.m., then declined to 3 p.m., then rose to the close. This pattern occurred 142 times in the last 19 years. On the day following this behavior, prices rose 90 times (63.4%) and declined 52 times. A chi-squared test for significance found this score to be highly significant. It would have occurred by chance less than once in a thousand repetitions. It's interesting to note that four successive declines shows a highly significant bearish score, but four successive rises is even money. Arthur Merrill is a Chartered Market Technician and the author of many reports and books, including Behavior of Prices on Wall Street and Filtered Waves, Basic Theory.

Figures

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Stocks & Commodities V. 9:4 (139-139): Merrill Directional Patterns by Arthur A. Merrill, C.M.T.

FIGURE 1:

FIGURE 2:

Figures

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