Market Reverses, Invalidating Bear Flag

Feb 12, 2008: 10:11 AM CST

As I mentioned in last night’s post, I saw some bullishness underlying the market from the fact that the sellers were unable to take prices lower than 12,500 three times in the last week. Also, the classic bear flag which formed wasn’t resolving with any satisfaction, meaning that the pressure was building behind the scenes for a bullish upswing, however temporary it may be.

Let’s look at a daily chart of the Dow Jones Index, where I have called out the most recent price action and placed a spotlight on the price rejection zone and the failed bear flag:

I noticed that the price rejection, in the form of lower shadows on the candlesticks, was a clue that sellers were losing the battle of supply and demand.

Today’s news reports that Warren Buffett offered assistance, which eased the credit concerns. “In an interview on CNBC, Buffett said his Berkshire Hathaway Inc. holding company has offered a second level of insurance on up to $800 billion in municipal bonds.”

The NASDAQ is showing a similar pattern, but looks a bit more bearish than the Dow Jones Index:

The NASDAQ chart is showing a potentially interesting pattern. Notice the miniature Bear Flag within the larger Bear Flag. That’s very interesting to me and I’m anxious to see how it resolves.

Notice the near perfect 45 degree angle as price makes a counter-trend move into key resistance from the falling 20 period moving average. I’d like to see price clear that hurdle and bust this mini-flag before getting bullish. In fact, this is a downright bearish position that the NASDAQ is in currently. It is perhaps another opportunity to ‘get short’ with a tight stop should price continue to rise.

Apply your own analysis and see where you think the potential profit zones are compared to the risk.

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One Response to “Market Reverses, Invalidating Bear Flag”

  1. Stock Market » Market Reverses, Invalidating Bear Flag Says:

    […] Corey Rosenbloom wrote an interesting post today on Market Reverses, Invalidating Bear FlagHere’s a quick excerptAs I mentioned in last night’s post, I saw some bullishness underlying the market from the fact that the sellers were unable to take prices lower than 12500 three times in the last week. Also, the classic bear flag which formed wasn’t … […]