Bearish Pennant

I don’t like to get too technical on here.  But, I’ve been noticing a pattern forming over the last few days.  I’ve tried to explain it but it’s easier to show it.  Below is a picture of the S&P 500 SPDRS (SPY).  A pennant is when the market starts becoming narrower.  It typically resumes the same trend as before the pennant.  You can see from the picture below that the market had been falling in June, then we got this pennant through July and August.  Then came the big fall in September & October.  Now, we are forming another pennant.  This one is much more volatile but the results could be the same.  If this pattern holds, we should get a big rally in the next day or two.  If the market doesn’t break out to the upside, we could be looking for new lows in all the indexes. 

The selling has been persistent just like the buying was persistent in the late 1990s.  Selling pressure is simply too high right now with fear elevated, margin calls, & mutual fund redemptions.  I’ve been very tempted to purchase a few stocks that look really cheap.  But, it’s not about fundamentals right now.  It’s about fear and the fear is still very present.  The bright spot in all of this is the fact that credit spreads and the shear panic we’ve seen in the credit markets continues to subside.  Some positive news and we could see equity markets rebound sharply.  Make sure if you’re trading in here, play small.


1 Response to “Bearish Pennant”

  1. 1 DG in Fort Worth October 22, 2008 at 8:15 pm

    Karl –

    I enjoy the AM show on Biz Radio, although I can only manage to tune in about 7:30 on my commute to west Fort Worth. Some AM station in Lincoln, NE appears to overtake 1110 AM in the mid-cities.

    I enjoy the advice, but the trading approach is too “quick” for long-term investors like me. I never reduced my holdings prior the “crash” – I just never dedicated the cash I was holding. I’m gradually moving my cash in as we have down days – dollar cost averaging in on the down days. I’m not predicting a bottom, but plan to be sitting pretty 2-5 years from now while enjoying 5% dividends on my investments.


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