Be Careful out there

The rally in markets over the past month from the lows of the so named “Black Monday” seems to be running out of steam. The pattern from the low on the Dow has 5 marked waves and the trend lines defining the pattern are converging. It’s not a text book example but the pattern is known as a rising wedge and it’s bearish. The chart is shown below.

The rally in markets over the past month from the lows of the so named “Black Monday” seems to be running out of steam. The pattern from the low on the Dow has 5 marked waves and the trend lines defining the pattern are converging. It’s not a text book example but the pattern is known as a rising wedge and it’s bearish.david paul 19th Sept

As you know I felt the Dow would push to 17155 and it nearly got there. The 30 stock index reversed strongly in the last two trading days of the week. From a classical charting view point a rising wedge in a market that’s trending down where the 50 average is below the 200 day average is a high probability selling opportunity.

Volume analysis is difficult and very subjective but the fall into Black Monday occurred on rising volume while the rally over the last month was on falling volume. The fall yesterday (Friday 18th) occurred on rising volume. When you observe markets falling on rising volume and rallying on falling volume then the bears are in control and there is lots of evidence that this is the case at present.

In the US the sectors that are falling are energy, materials and financials with banks marked down strongly on Friday. Utilities and Reits are holding their own.
Although the analysis above is on the Dow cash my experience tells me that if the Dow falls the UK and SA markets will fall around a nanosecond later.

On VectorVest UK the trends are Down and Down with the underlying trend Confirmed Down since the 30th of July. The advice on the front page “VectorVest does not advocate buying any stocks at this time” should be taken very seriously by all.

I have kept this brief as no amount of words can predict the future on a trade by trade basis. The probabilities favor downside over the next week and I urge you to watch stops carefully. The Big Hitters stocks with strong fundamentals should hold up well but they still need to be managed. Any small losses we can make up easily in the run up into Christmas.

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David Paul
19th September 2015

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