Tuesday, June 14, 2011

NOT a morning star

I have a pet peeve when it comes to charting. It is a strange one since I am also a big fan of finding the spirit of a technical pattern when the "letter of the law" does not really work.   I hate it when people mangle patterns and see things that are not there.

As of Tuesday afternoon, the stock market has a big rally under its belt. Some might say it was the final piece to a bullish morning star pattern and proof that the market was ready to resume its bull run.

Here is the S&P 500 in mid-afternoon. Even though the day is not over, do you immediately see something suspect? More later.

A big down, day, followed by a calm day and then a big rally day are indeed the basics for a morning star. The spirit of the pattern is something like a washout, some soul searching and then the realization that it was time to buy.

Or, the tide ran out and then it rushed back in, mini-tsunami style.

First of all, day three is supposed to open weak, not off to the races at the open. The third candle is supposed to open below the close of the first candle. Consider it the last hurrah of misguided bears before the bulls come charging back.  Strike one.

In my game of pattern police, you only need two strikes. The second is volume. Where is it? What tells us the bulls came charging back? Or that the tsunami hit the beach?  Nada.

Yes, I know there is a lot of trading left this afternoon and volume could surge but so far it does not meet the spirit of the pattern.

You may argue that volume has been funky throughout the QE era and I agree in the big picture. The rally can go on for days on low volume but a reversal is different. It represents a sea change of mood and what we see here ain't it.

Bounce yes and I have targets for subscribers. But happy days are here again? I do not think so.

1 comment:

Tier 1 said...

Quite frankly I'm amazed, this is a very oversold market by a variety of measures, yet the market can't even sustain a one day bounce.