Wednesday, August 3, 2011

Market is in Falling Wedge

Market is falling, and I get excited, because I like extremes and falling wedges. For those who do not know - falling wedge is a bullish reversal pattern. Now, it is important to understand how you trade it. You wait for a breakout and buy the pullback. Do not catch the falling knife. Is this easy enough to understand? If not, comment on the message and I will explain further.

SPX has breached the low of the year @ 1249, and almost reached two important targets below that. 1230 and 1220 are looming and are major points of support. Hence, I seriously doubt we get to 1200 before we go back up and backtest 200 dsma once more. Everyone and their brother is now focused on the same chart, head and shoulders, and neckline. What happens when everybody wants the same thing?

Watch for this steep falling wedge to break out and produce a major short-covering rally. Is this the bottom? One never comes until we stop asking.

UPDATE @ 4 pm
Market roars back into close. Wedge breakout in progress. Be careful as many players are waiting for rallys to sell into. Trade wisely, take profits, scale out, trail stops.

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