Touch Me, Touch Me Not

Published on February 18, 2009

Touch Me, Touch Me Not

February 18, 2009

Mr Market never makes it easier. Before I begin to share my thought, pls do read my earlier post about the early warnings. Dow Industrial closed just a notch above it’s Nov 20 low. Sure, it might be possible that sell-off run out of steam, but it was able to provide support to that level. It broke it today but as of this writing, markets are trading in a thin positive territory. I am surprised at today’s reaction. Typcially a 90% down day is followed by rallies (like what happened on Nov 20). It seems there is no buying interest yet. Well there are few hours left, anything can happen these days.

Moving on, here is a scary chart. Dow is forming a bearish descending Triangle pattern and speaks for caution. According to Stockcharts “The descending triangle is a bearish formation that usually forms during a downtrend as a continuation pattern. There are instances when descending triangles form as reversal patterns at the end of an uptrend, but they are typically continuation patterns. Regardless of where they form, descending triangles are bearish patterns that indicate distribution”. The Transports have already broken this support horizontal line yesterday.

For those who are not familiar with this type of pattern, you may wanna checkout investopedia. According to them –

What Does Descending Triangle Mean?
A bearish chart pattern used in technical analysis that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support. Traders watch for a move below support, as it suggests that downward momentum is building. Once the breakdown occurs, traders enter into short positions and aggressively push the price of the asset lower. The chart below is an example of a descending triangle:

Investopedia explains Descending Triangle
This is a very popular tool among traders because it clearly shows that the demand for an asset is weakening, and when the price breaks below the lower support, it is a clear indication that downside momentum is likely to continue or become stronger. Descending triangles give technical traders the opportunity to make substantial profits over a brief period of time. The most common price targets are generally set to equal the entry price minus the vertical height between the two trendlines.

As I mentioned earlier, if these levels are penetrated, we may get another Bear Market Signal and you may wanna stay out of equities for a while or do proper due diligence before making an investment commitment.

Profitable Trading, OP

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