Real World  |  OCT 1998

Flexible Market Forecast by Michael Kahn

It is important to be flexible in your market forecasts, as this walk through some recent trends in various markets indicate. That repetitive price patterns exist is one of the foundations of technical analysis. The reasoning is that repetitive patterns occur because traders react to similar market conditions in a similar fashion. Unfortunately, in the real world, the term similar market conditions is subject to interpretation, as the market’s price movements do not unfold in a precise, repetitive fashion. Take a look at ex-amples of some market movements, including trends and reversals, to see how much leeway is required when you watch a technical pattern unfold, and what to do with it. The 30-year US Treasury yield was in a downtrend (with rates falling) starting in early 1992. Figure 1 shows that in late February 1993 to late May 1993, the yield for the Treasury bond had been trading in a narrowing trading range centered at 6.9%. I have drawn an upward sloping triangle. In addition, the momentum as indicated by the nine-day relative strength index (RSI) had broken down through its own uptrend line.

by Michael Kahn