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BEAR FLAG!
richard
blog
I wanted to post this up yesterday, but just didn’t get around to it. So yesterday’s chart (August 19, 08) indicates a bear flag…a bearish signal!
A bear flag is a sharp, strong volume decline, several days of sideways to higher price action on much weaker volume followed by a second sharp decline to new lows on strong volume. Here’s an example:
Something similar to the illustration above is likely to happen in the S&P500. Sellers are coming in as people start to realize that the markets aren’t making any progress past the MA(50). We had an up day today, but I would strongly suggest taking profits off the table to position yourself on the short side. The next leg down may have just started. I’ve also noticed that institutions are selling into buying this past month. This is a sign that more bad things will happen and that institutions still lack confidence in the overall economy.
Let’s take a look at the trend lines I drew again…the parallel lines indicate the bear flag, if we had closed below those parallel lines today (1260ish) the bear signal would’ve been confirmed. We however got a little bounce today (sorry I don’t have that chart on me) which gives us traders some room to go short. I’ve also noticed decreasing volume in the S&P, this isn’t surprising because it is the summer season after all…but this can also indicate decreasing interest in the market.
A lot of bloggers are calling for bottoms, but this is impossible to do…bottoms are a process. The path of least resistance is still lower, so I don’t think calling 1200 a bottom is fair. As mentioned in my previous posts, this uptrend should only be a brief one, I would call it a relief rally before another long leg down. If we were to continue to breakdown, I would take this one seriously. All in all, I don’t believe we have bottomed yet, we are likely go lower so I would consider those bear ETFs again like SDS, QID, and TWM.
Richard
richard[at]hedgeagainstspeculation.com
August 23rd, 2008 at 1:06 am
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August 24th, 2008 at 6:18 am
You are right to raise a bear flag. There could be rallies along the way but I doubt we have hit bottom yet.
August 24th, 2008 at 10:32 am
I actually wasn’t expecting the bounce on Friday, but the bounce was fair…it looks like we might hit our head on 1300 and shoot down from there.
I am in TWM right now and will most likely get into SDS on Monday before going on a vacation to Vancouver, B.C.
August 25th, 2008 at 9:01 am
[…] we move on and talk about the markets. But firstly, if you haven’t already please read my Bear Flag article first, things are starting to develop and we could easily reverse anytime this week. […]
September 1st, 2008 at 4:03 pm
I took a look at the graphs and I can see something that worries. The volume on the down days in increasing and it is higher than the volume on the down days.
September 1st, 2008 at 11:49 pm
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Do you mean the volume on down days is larger than the volume on up days?
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