Uptrend Channels Remain In Charge; Rising Wedges Psychology Wrong
Principles of the Stock Market

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Have You Seen This?

 TECHNICAL VIEW.  Written Wednesday, May 14, 2008:

I may have been seeing clouds in the sky when there weren’t any.  The near term bearish Rising Wedges in a bunch of market indices I wrote about last Thursday don’t seem to have really followed through.  Stock prices did fall back last Friday but then Monday and Tuesday stocks bounced some so it doesn’t really look like the stock market suddenly ran out of buying power as rising wedges generally indicate.  Maybe today’s investor crowd psychology isn’t that easy to interpret.  I mean many investors remain unconvinced about today’s economy going forward and the future ramifications possibly emanating from the credit crunch -- after a lag -- and thus short the market every chance they get.  After the Bank Panic of 1907, which I’ve referred to in this space previously, there was a period of time whereby investors remained very nervous and skitterish and thus kept shorting.  Since our bank panic of recent months seems similar, at least to me, it’s hard to visualize too much of an exhaustion of buying power when there hasn’t been an abundance of buying power around in the first place.  Net, net, I just used an eraser on my wall charts of the S&P Midcap which was one index I really noted the wedge chart pattern in.  Schwartz View:  Thus it now looks like the uptrending channels just remain in place and in charge.  Thus our strategy remains very similar to our strategy if Rising Wedges had formed and broken anyway since wedges indicate a temporary drop not a reversal of primary trend.  The meaning for traders, speculators and even investors is that we’re just back to looking to buy some more on dips when prices pull back to the bottom borders of their uptrending channels.  FYI, we’re close to that point in the Dow Industrials but not in the S&P 500, 400 and 600 or the Nasdaq Composite.



Posted 05-15-2008 9:47 AM by Richard Schwartz