Friday, November 27, 2009

Bearish Island Reversal in Place






Thanks to blog reader, JD, for pointing out that today's gap down in the stock market leaves a bearish island reversal in place right now (click here for JD's comments). As you can see from the attached S&P and Dow charts, the up gap from Monday was followed by a down gap today which is a classic reversal pattern from the previous trend. This is just more evidence of a short term top forming; and when combined with the longer term evidence it suggests that perhaps a major top is already in the stock market.

Thanks a lot JD for sharing that insight with us!

6 comments:

Michael Eckert,aka-Columbia1 said...

SOLD!!

Rob said...

Two things I've been thinking about ...

(1) Dubai's possible default. What I found most interesting was that London seemed a lot more shaken by this than Wall Street was. I got a different feel reading the Financial Times vs the Wall Street Journal; Brits calling Dubai a potential catalyst, Americans saying it's no big deal and will blow over. This divergence (as I perceived it) is understandable in that British banks and investors have far more direct exposure to Dubai. But maybe it's also about sentiment - the US, like the DJIA/SPX, being the last general still charging up the hill when everyone else is slowing down or retreating.

(2) Black Friday shopping. Reading the news coverage, I found it interesting that yesterday's big sellers included items like ... vacuum cleaners. Is it just me, or is this a big change? People seem to be using the pre-Christmas sales not just to buy gifts for others, but also a lot of rather basic things for themselves.

Question is, how much of the buying for oneself represents pent-up demand being released, and how much is future demand being pulled forward? Are people buying now to get a once-in-a-year-bargain price on the things they anticipate they will want/need next year? If so, that is bad news for retailers - they are trading future, higher-margin sales for present, lower-margin sales. This could bring retailers a decent 4Q2009 followed by a disastrous 1H2010. Could prove worse for retailers than I suspect Cash for Clunkers will be for the auto industry, because the discounts retailers are giving now come out of their own margins, whereas most of the Clunkers discounts were funded by government spending.

Wishing everyone a good weekend

Anonymous said...

Todd,

Did you notice the broadening top formation on the Nasdaq?
Mart

Todd said...

Hi Mart,

No I did not notice that. Can you clarify a bit please, or email me a chart (toddsblog@comcast.net)?

Thanks,
Todd

forexhug said...

good chart system

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