Not even the markets are immune to the time of year. No kidding – CNBC even asked me to do a segment tonight on my top three Halloween spooky-scare stocks.
What’s more, a chart designed to impart maximum shock value has been circulating around the internet.
So I’d like to interpret it for you and let you know what’s wrong with the chart – and even some of the ways it’s right on.
This chart has the potential to influence a lot of folks’ decision-making at this juncture in the markets, so it’s important everyone is clear-eyed about what this is and what it isn’t.
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Have a look…
This Is an Awfully Dire-Looking Forecast…
Now, oddly enough, this is from a reputable research firm, and at first glance, it looks as though the technician that constructed it knows his stuff.
Now, to be honest, there are a few things here I find myself in agreement with. I think the upper trend line is drawn correctly and has some validity. And, unlike a mirror, if it’s broken, we’ll have seven more months of uptrend.
What’s more, the concept of “increasingly dangerous bubbles” is quite compelling, and I believe that we will look back on this bull market and call it the “QE bubble.”
Now, there are some things here I’m not too crazy about.
For starters, saying that we are not in an uptrend because the move up has been caused by multiple bubbles is patently absurd. If I’m running fast just because I’m being chased by a rabid dog, that doesn’t negate the fact that I’m running fast. It just explains why…
And that bottom trend line (lower support) of the wedge is totally subjective – and capricious. And that means this isn’t really great technical information upon which to base an investing decision.
I’ll show you why in a chart of my own.
Here’s the Right Way to Look at It
Let’s buy into the fact that we’re looking at a rising wedge – hey, we probably are.
However, to complete the pattern we really need a legitimate third touch of that bottom support line. And until we get the third touch, that line can move. In fact, it already has. Here’s what that line looked like before the August through October 2015 lows were hit:
If we look at that line now, we see that it was broken with multiple closes below it:
Any exit on the break of the original line would have had you forfeiting a 12% to 13% move higher.
The bottom line? This rising wedge pattern is a useful one to watch and it will become critical, once we get one more successful test of the bottom support line. Until then, it’s a just another pattern in development. The “line in the sand” is still holding.
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