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Monday, February 25, 2008

Stock Market 'Pennant' Formation to Resolve Soon?



Here is some detailed technical analysis of the DJIA and its 'pennant formation', curtesy of Forex Capital markets, which appeared on the Yahoo Finance site on 2/25/08:

pennant

In technical analysis, refers to a chart pattern occurring when the trading range formed by successive highs and lows narrows over time.

Equities – Dow Jones Industrial Average

US equity markets have been in a downward trend since October as deteriorating economic data leads fears of a recession to build. Upcoming news could weigh on stocks, as housing sales and prices are forecasted to tumble while consumer confidence is anticipated to plunge, which does not bode well for the domestic economy as consumer spending represents approximately 70 percent of GDP. Meanwhile, a daily chart of the Dow Jones Industrial Average shows price consolidating within a pennant formation, and given the sharp declines that preceded the recent moves, a bearish breakout is likely. However, if price holds above near-term support at 12,300 and manages to find a bid tone to break above 12,500, the index may target trendline resistance at 12,660.


Written by Terri Belkas, Currency Analyst, Forex Capital Markets LLC, DailyFX.com

Tell us what you think about this article. Email tbelkas@dailyfx.com

Curtesy of http://biz.yahoo.com/fxcm/
080225/1203952532617.html?.v=1

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And Barron's column "Streetwise" (2/25/08), by Michael Santoli, has some interesting observations on the tediously narrow range that has held the stock market captive this month---

"...As a sharp trader friend likes to say, "When nobody know what's going on, people turn to market technicals..."

"...it seems most everyone is turning in their spreadsheets for some charts, with talk of the Dow's "triangle" or "wedge" or "pennant" pattern all too common."

"To translate, this talk basically means that the Dow coiled itself into a tightening band. And the sages helpfully tell us that the pattern tends to be resolved by the index breaking hard--one way or the other. So, let's get this straight: Often, after a period when nothing much happens, something happens."

"If professional investors are bored, then individuals are...fleeing equities...investors have pulled nearly $60 billion from stock mutual funds this year, while adding more than $70 billion to money-market funds and small CDs..."

But "corporate insiders have been on a selling strike for nearly two months. The dollar-based ratio of insider sales to buys has been in the bullish zone pretty much all year...and down 90% from a year ago."

Robin Carpenter of www.CarpenterAnalytix.com is quoted in Santoli's column as saying--

"For what it's worth, my own expectation is that we are close {in time} to an upturn of some consequence, but that the market needs one more down-thrust of some energy."

To view this week's Barron's for free, go to http://online.barrons.com/this_week






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