Pre-market Monday morning the chart below was produced, reflecting two key pattern issues….500 Index and TLT were at polar opposites and the 500 index was on support, inside of a narrowing flag/pennant pattern (see post here)
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Does does today’s rally prove Einstein was correct and solve any bigger pattern issues? See below…
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The action this week proves that support highlighted Monday morning was strong in the 500 index as well as resistance was strong for TLT.
Does the big move today prove anything from a pattern perspective? NO!
As can be seen above, “life inside of the flag/pennant pattern” continues. Support and resistance continue to come into play. The summer of 2010, reflected a similar back and forth pattern, that once resolved led to quality upside gains. The action of today from a pattern perspective only proved that the bottom of the flag is support and not much more!
Thank you for such a thoughtful and detailed response. Veey helpful!
Einstein would approve, he was a firm believer in ‘the power of the pattern’ (though he was uneasy about uncertainty).
Mark…
The post earlier this week…Confusing signals reflected that Commodities (CRB/CRX) remained inside of a quality falling channel, creating a similar sloped line in todays “Change” post.
Some day the CRB/CRX/500 will break these resistance lines…until they do break resistance, odds favor aggressive investors should be sellers/short at these lines.
Per your wedge question, the cool thing about them is this…they piss off so many bulls and bears, due to lack of direction, large numbers of investors just step aside. Then when the breakout/breakdown happens people follow the move, which makes it all the bigger as they pile into it.
I am not a day trader, so for the most part I do not care to play the wedge until it gets really close to a finish, since the back and forth action forces people to trade very frequently and fast. If you are correct on these back and forth moves, it is great for a portfolio…if wrong, the losses can become staggering!
Thanks Mark for quality questions and your viewership,
Chris
Chris
Hi, Chris: Thanks again for finding and updating this pattern!
Earlier you suggested that in a declining market it works to buy RWM when the market is up against resistance and then sell at support (aggressive investors only). Is this another such moment? Indices (including IWM) are back up to resistance now… Or is it better to wait for a breakout or breakdown from the narrowing wedge?