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Termination Patterns Brewing in Brazil, Russell 2000, and the S&P 500
The action of the last few days has created rising bearish wedges in Brazilian ETF, S&P 500, and the Russell 2000.
Let’s start with Brazil as it’s become THE international “risk” market, leading all the other BRIC countries in the market (Brazil is blue, Russia green, China red, and India purple).
With that in mind, have a look at Brazil’s ETF which is forming something of a rising bearish wedge pattern. This is a termination pattern which means when it breaks it will likely be down and wipe out most of the gains of the last week.
Now, this pattern does have a bit of upside left in it. But we could just as easily take out the bottom trendline in which case, we’re on our way to new lows.
In the case of the S&P 500, this pattern is far more pronounced and rapidly nearing its apex.
As for the Russell, we’re right at the apex.
When you combine these patterns with the light volume that has occurred throughout this latest move upwards as well as the fact it’s moving on rumors (seriously, Eurobonds? You think Germans are going to support this?), we’re very likely going to see a reversal in the near future culminating in new lows for the year.
Remember, while all the focus is on the Fed and its response to the markets, the US economy continues to worsen. This morning’s Empire Manufacturing numbers were terrible. Add to this the recent market rout (which will impact sentiment surveys going forward) as well the all but guaranteed terrible 3Q earnings we’ll be seeing soon, and we’ve got a real economic downturn on our hands.
And people are viewing stocks as a great buy today?
We went for this same scheme back in 2008. At that time the US economy was clearly breaking down, the banking system was collapsing, and yet people were buying every dip and viewing every negative announcement with rose colored glasses.
We all know how that turned out.
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Graham Summers
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anybody know where i can find how wedge patterns are calculated? how does DECREASING volitility as a trend advances indicate a move or pivot or whatever?
Janus
Try http://thepatternsite.com/index.html
Bill
oh, wait, i think i just got it (can anyone tell me if i'm on the right trac?):
as the trend advances, the herd (dumb money) becomes more and more convinced that the trend is Truth, and so volitility attenuates; and as human certainty solidifies around greed and gain, the flaws in perceived Truth become more and more evident to all but those still deluded by their greed for gain; whereupon, some clever speculator/investor runs a spanner right up the gut of greed and gain at the point (inflection -- concave DOWN, bitchez! -- of emotion at its peak confidence) where greed is fattest and most content. and then the process reverses itself.
I know that's a math formula sorely wanting numbers and whatnot; but that stuff's just incidental. my question is: is that the kind of thinking that goes into wedge patterns?
You think Germans are going to support this?
do not underestimate the Germans' ability to say one thing and do the opposite. the end game here is fiscal union
When will I stop falling for the headline....knowing that Phoenix Capital has the sky falling every day. I am bearish but in 25 yrs I never actually saw a Bearish Wedge do anything special....you would have to know Exactly what that is, and of course at that point you will know how to trade it, easy. I can already hear the gallery claiming that it was their call about the Bearish Wedge, The Fucking Candle Extraordinaire Formation, bla bla bla. Everyone knows its going to be some sub-wave of somthing or another that will be the exact point, obviously, that the mkt breaks.
OK based on this very optimistic (to us Polar Bears) report I will now not only maintain a 60% position in TZA but sell every put and with that money, buy every call on TZA I can get my sizable mitts on.
100% to the downside.
And if I lose, I will expect to be reimbursed by you.
Deal or No deal?
wow - techincal analysis crunched down to one indicator! Kind of like saying the only single piece of fundamental data one need watch is current year P/E. What a ding-dong!
When did drawing tangents to the extremal points in a price time series become a "trend line"? This has zero predictive value unless everyone believes this superstition. And if everyone does that and acts on it, it would become useless as a trading strategy-since a trade requires two contrary opinions. That explains the only sure way to make money by trading-start an advisory service and let other people risk their money and pay you for your "advice".
yeah right and starting day 10/08, we had 500 points up and downs on the DOW from one day to another, so of course that would flatten out a bit.
would you call a five day trend a trend?!
Where the spot where Ben buys SPY full force shield