Driving A Wedge Into The Bull?

09/22/11 09:19:58 AM

by Matt Blackman

Bad news/good stock action is a good omen. Good news/bad action usually spells trouble.

Security: SPY
Position: N/A

In my September 13th article, "Is This Make It Or Break It Time?" we saw some bear flag patterns on both the Dow Jones Industrials exchange traded fund (ETF) (DIA) and Dow Jones Transports ETF (IYT) as the world waited with great anticipation to see if the Federal Reserve would throw more gasoline (that is, stimulus) into the fire (as in, our economy).

FIGURE 1: SPY, JJC, SSEC. Here's a daily chart showing the S&P 500 Trust Series ETF (SPY) along with the iPath Dow Jones Copper ETF (JJC) and Shanghai Shenzen Composite Index (SSEC-X).

Graphic provided by: FreeStockCharts.com.

Back then, the bear flag patterns that typically don't last longer than three weeks were already older than that, so a reevaluation was required. Now a new pattern has emerged.

With recent action on the S&P 500 Trust Series ETF (SPY), a bearish rising wedge with a volume signature to match is clearly visible. Figure 1 also shows the JJC copper ETF looking increasingly bearish along with the Shanghai Composite Index, which has been negatively diverging with US indexes for a while now, further confirm the bearish outlook.

It may also interest the reader to know that Oracle (ORCL), a good software industry proxy, which broke out strongly from a bullish inverted head & shoulders pattern on September 15, put in a bearish shooting star candle pattern the day after reporting better than expected earnings (September 19).

The moral of the story is that stocks like ORCL will have to help pull the market up by its bootstraps if this rally has any chance of continuing. But when the S&P 500 and other indexes dropped strongly on the September 21st Fed announcement of further quantitative easing (in the form of buying another $400 billion in debt), it shows that investors are reacting increasingly negatively to news. And anyone who has read the the book "Logical Trader" by NYMEX trader Mark Fisher knows, good news/bad action is a sure sign that the bears are taking control.

Matt Blackman

Matt Blackman is a full-time technical and financial writer and trader. He produces corporate and financial newsletters, and assists clients in getting published in the mainstream media. He is the host of TradeSystemGuru.com. Matt has earned the Chartered Market Technician (CMT) designation. Find out what stocks and futures Matt is watching on Twitter at www.twitter.com/RatioTrade

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Driving A Wedge Into The Bull?

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