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It must also be stressed that like all technical indicators, the Marabuzo line cannot be solely judged in isolation. Context is vital and so the likely strength of the impact of the line will be heavily influenced by whether prices are overbought/sold, at an important Fibonacci point, close to a trend line etc.

Of course if the ‘Support’ Marabuzo line does give way then sentiment should be expected to show increased negativity and the line itself will become ‘Resistance’ until it is supplanted by a new Marabuzo created by subsequent price action.

 Figure 1 is a chart of the weekly Dow Jones and contains 3 Marabuzo lines.

The 1st is entered on a weekly decline that is clear larger than preceding candles. The line comes in at 12260 and caps the topside, on a closing basis, for the next 2 weeks.

Technical analysis Marabuzo Line Dow Jones index.png

This then leads to a sharp decline of more than 700-points before demand returns. The next Marabuzo line is drawn on the subsequent net weekly improvement which was the strongest weekly performance of 2011 to date. In the following weeks that level was only approached, not tested, with the move through the previous Marabuzo line confirming the new positive tone for the Dow. Finally, the market peaked during May and the first weekly fall stalled on a closing basis at Marabuzo line 3, 12658. However the next week confirmed that sentiment had turned negative by a close beneath the line with the market then posting 2 down weeks in succession.

Figure 2 is of daily EURUSD.

Technical analysis Marabuzo Line EUR USD.png

On this chart I’ve also marked 3 Marabuzo lines although the first has, at the time of writing, not been used as a trading signal. This may yet happen. The 2nd Marabuzo line is drawn on the 2nd down day and this time the level, 1.4426, is tested on each of the following 3 trading days – each time providing levels for investors to sell. The 3rd line comes 3 days later as the market begins to sell again and the relevance of this can be gauged by the market’s upside failure near this point five times over the next seven days.

Figure 3 is a 2 hourly EURJPY chart.

Technical analysis Marabuzo Line EUR JPY

You can see the relevance of the lines even with another change of time period.The first Marabuzo line was drawn on the first exceptional decline period, at 114.91. After forming a low beneath 114.00 the market’s rally stalled for 3 periods at the Marabuzo line before a close above confirmed a new positive tone. The line then protected the downside during 5 of the subsequent seven 2 hourly periods. In fact it helped formed a base that then yielded significantly higher levels. The 2nd Marabuzo line was drawn on a bugger than normal up candle after another setback had found buying interest at similar levels. This line came in at 115.13 and held the downside over the next 3 sessions before the market posted steady upside.

CONCLUSION

It can be seen from the above examples, and from putting this simple methodology into practice yourself, that although using 50% Marabuzo lines provides new support and resistance levels, the application of these levels is exactly the same as in those arrived at by other, more traditional means. Like all such levels they must always be regarded as potential influences until tested and proved. However, the regular use of these signals provide an invaluable, additional tool and one that I heavily rely on.

Alan Collins

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