Massive Monthly Enhanced Bear Flag Example on GE

Aug 20, 2009: 12:27 PM CST

General Electric (GE) gives us a great example of how the patterns in technical analysis (charting) are fractal, and are applicable to all timeframes.  Let’s take a look at perhaps the most massive bear flag I have seen, which serves as an ideal educational example of the “Enhanced Flag” concept.

Starting with the late 2000 price highs, GE formed a large “impulse” (or ‘pole’) down from the $60 level to $20 which ended as the broad market bottomed in 2002/2003.

GE then formed the “flag” portion of the pattern through the entirety of the recovery into the market’s 2007 highs (notice that GE was only able to recover 50% of its 2000 price peak) before breaking down in 2008 as price traveled down to complete the “measured move” anticipated by the huge “Bear Flag” pattern.

This also could be considered an ideal “Measured Move” pattern or more commonly known as “AB = CD” which is almost identical to the ‘flag’ labeling.

In terms of the “Enhanced” Flags I enjoy describing, the “best” Bear Flags will have an “ABC” three wave structure as it pulls into either the 50.0% or the 61.8% Fibonacci price retracement.  In this case, we saw the 3 large wave “abc” pullback right into the 50% zone.

To better increase the confidence, we would look for candle patterns to form at the expected resistance level, and we saw a doji (it’s hard to see on this chart) which is an indecision/reversal candle often seen at key inflection points in a market.

Aggressive traders can enter at the upper range of the parallel trendline, which allows for a tighter stop, while more conservative traders can wait for a confirmed breakdown of the lower trendline, which confirms the flag is most likely the dominant pattern.  The target would be a full ‘measured move’ of the initial impulse.

Keep studying this pattern for additional insights and realize that the majority of ‘technical analysis’ is fractal – meaning the pattern you see here on the monthly chart is just as applicable when it appears on the daily, weekly, or even hourly/intraday charts.

Corey Rosenbloom, CMT
Follow Corey on Twitter:  http://twitter.com/afraidtotrade

7 Comments

7 Responses to “Massive Monthly Enhanced Bear Flag Example on GE”

  1. Massive Monthly Enhanced Bear Flag Example on GE Says:

    […] Courtesy of Corey at Afraid To Trade […]

  2. Bob Says:

    Nice example Corey…

    If the bear flag component is a “corrective ABC wave”, then the initial impulse down would be a “motive wave” and contain five fractal elements; this does seem evident. Then, the second sell-off following the bear flag should also be a “motive wave” composed of five fractal waves.

    In your opinion, have five waves completed in the second sell-off? It looks proportionally complete.

    Thanks…

  3. Moolah Street Says:

    Hello Corey,
    I think you are doing a smashing job educating all your readers! I asked you some time ago to give me your views on Citigroup(C), and you wrote an article about it! I really appreciate what your doing.
    I am a little confused about AIG. What is going on with it? A comment or view would be very helpful from you.
    Taseer Raza

  4. Casey Says:

    Corey,

    In the fifth edition of Edwards and Magee, Robert Edwards says about flags, “The process of minor fluctions may . . . go on for as much as three weeks.” I believe trading took place six days a week when he wrote that, so that's 18 trading days. If we accept his description, on a monthly chart a year and a half would be a relatively long flag.

    I can appreciate your analysis of the chart – the 50% retracement, equal moves into and out of a very clear abc correction, and your discussion of how one might trade the correction. But I have a problem thinking of a 55 to 60 bar correction as a flag. I'm much more inclined to see the bars of the last few months as a possible bear flag.

    Best regards,
    Casey

  5. sandew Says:

    First thing in the morning, even before I open my NIFTY charts, is your blog and your write-up for the day. In an unknown way this reading of your articles stimulates me to trade 'right' back here – maybe it is like a teacher who before the major exam just tells his students “Do Well” , and they do so. Thank you for your post and zeal.
    Sandew
    India

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