Saturday, July 14, 2007

Those Deceptive Patterns

Bear with me on this one. Since I'm not a big "chart pattern" fan I may not draw these patterns completely correct but you'll get the idea. In the first chart we see some of the reasons given for why this market was topping out, at least short term. The S&P was at the top of the trend channel and had obviously failed and was now regressing back to the middle or lower end of the channel. Momentum and daily money flows had deteriorated seriously. Volume was enemic. Sounds reasonable even I could buy it. However for any bearish pattern some one else can find a bullish pattern out of the same charts. I'm just the someone to do that. Let's look at the next chart shall we. The Nasdaq 100 (Q's) are not confirming the weakness in the rest of the market. It should be leading the decline not showing relative strength. Next the NYA has completed the 1-2-3 reversal by closing above the initial reaction and as a matter of fact it like the Q's are already at new highs. Now lets take a look at those pesky trend lines that everyone likes to use as resistance and support. Well low and behold the trend lines have already been broken twice. I've got news for you that's what happens in bull markets. They go up and they don't give a d**n about lines on a chart. When we look at volume over a longer time frame we see it has been expanding as this bull progresses. Isn't that what's supposed to happen? Now in the final chart we see the 2b reversal to which I called attention too when it happened. Always a good sign that the selling has dried up and we see the result of all this. The bullish patterns proved to be the correct patterns to pay attention to. So how you ask do we know whether to pay attention to the bullish patterns or the bearish patterns. Well if you must try and make sense of patterns then I suggest you let the COT report tell you what kind of patterns to look for. The Cot has been saying look for bullish patterns since early Mar.