Bear Flags and Lower Prices

Feb 28, 2008: 10:57 AM CST

As I mentioned in last night’s blog post, index prices had hit probable resistance, formed a doji, and were poised to head lower. Today, prices headed lower, forming dual-bear flags as further confirmations.

Notice the first bear flag which set-up into yesterday’s price close. You have the first push down which is followed by a 45 degree angle retracement into the moving averages, which set up the flag pattern (which I missed viewing in my analysis last night).

This morning’s gap actually completed the flag pattern. Recall that the first play is to fade the gap, which gave a 50% fill before forming yet another near perfect bear flag pattern (which has currently hit its target):

It’s extremely rare to have two such bear flags back to back, especially where the initial ‘pole’ of the second flag is the measured move price projection from the previous flag. It happens, but it’s not common, and it’s often a sign of strong negative momentum. To be far, there is a slight momentum divergence occurring, and we have already had three pushes down (which could indicate exhaustion).

Also today’s action is a good educational lesson for Elliott Wave Theory. The intraday action so far has completed – in my interpretation – a five wave impulse pattern down:

With all this going on, we’re only halfway through the trading day so far!

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