Triangle Break Continues Despite Massive Negativity

Feb 26, 2008: 9:10 PM CST

The market continued to defy the odds today and make new (relative) price highs in a price continuation move out of the recent triangle pattern break.

This is a case where the technicals (price patterns) trump the fundamentals/news, as today otherwise would have been an immensely bearish day for the US Stock Market indexes.

Let’s start with the news.

Today, it was announced that the Producer’s Price Index rose 1% in January, exceeding economic expectations of a 0.4% gain. Also, the consumer confidence index declined and reports of stagflation resurfaced.

Stagflation occurs when an economy is contracting while inflationary pressures cause prices to rise. According to the Associated Press in the article “Worries Grow for Stagflation,” the situation creates a toxic economic mix the nation hasn’t seen in three decades: Prices are speeding upward at the fastest pace in a quarter century, even as the economy loses steam.

Typically, economic slowdowns curb inflation as consumers lose buying power, which reduces demand, but that doesn’t seem to be happening this time.

“The latest worrisome news came Tuesday: a government report showing wholesale prices climbed 7.4 percent in the past year. That was the biggest annual leap since 1981.”

And how do you think the market took this double-punch today? Did it fall 3% or more?

No, as I’ve already hinted, actually the market rose almost 1% today. The fact that IBM bought back shares helped, but was that enough news to combat the rampant bearishness inherent in these reports?

According to an MSNBC report, “The market is kind of overcoming negative news, which is potentially a next step toward higher prices,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research. “At least in the short-term, it’s a nice change here.”

As the adage goes, “Buy the rumor, sell the fact.” At any rate, let’s look at the chart and the continuation breakout from the recent triangle consolidation:

As the news gets worse, price went higher. A measuring rule (of price projection) would take price just shy of Dow 13,000, which could happen as price has closed above the declining 50 period moving average on increasing momentum.

Volume, however, is failing to confirm higher index prices. Let’s see how this dual non-confirmation unfolds!

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5 Comments

5 Responses to “Triangle Break Continues Despite Massive Negativity”

  1. Stock Market » Triangle Break Continues Despite Massive Negativity Says:

    […] Afraid to Trade.com Blog – Overcoming Fears wrote an interesting post today on Triangle Break Continues Despite Massive NegativityHere’s a quick excerpt The market continued to defy the odds today and make new (relative) price highs in a price continuation move out of the recent triangle pattern break. This is a case where the technicals (price patterns) trump the fundamentals/news, as today otherwise would have been an immensely bearish day for the US Stock Market indexes. Let’s start with the news. Today, it was announced that the Producer’s Price Index rose 1% in January, exceeding economic expectations of a 0.4% gain. Also, the consum […]

  2. kigol Says:

    Do you think there will be a pullback at 13000? I have been in DXD for 4 days now, right before the MBIA news came out….yea. So I’m wondering if I should realize my loss, wait for the market to peak, and short it again rather than wait it out to only stand to make 1-2%. What do you think?

  3. Corey Rosenbloom Says:

    Do you mean ‘pullback to 12,000?’ Price advancing to 13,000 would be a rally, not a pullback.

    I can’t give official trading advice, but I would say that today’s action, meaning the resistance level combined with a doji candlestick pattern on reduced volume, increased the odds of downside potential in the short-term.

  4. ArizonaChartist Says:

    “Triangle Break Continues Despite Massive Negativity”. As the proverbial “they” say, the market never discounts the same thing twice. So, until we see somthing new in the way of bad news the market is likely to continue to ignore it, imho. As a pnf chartist I have to say that with both the NYSE and OTC Bullish Percentages in a column of X’s the benefit of the doubt must be given to buying power until we see a reversal back into O’s.

  5. Corey Rosenbloom Says:

    Absolutely True. The massive negativity was more of an ‘eye catcher’ or teaser in the post, which referred to the drop in consumer confidence and unexpected rise in inflation.

    What’s telling is that the market had previously discounted this information and rallied despite the news, which suggests a strong undercurrent of bullishness (or greater odds of higher prices).

    I am trying to deepen my knowledge of point and figure charts, as they are part of the CMT material I am studying, but I have trouble connecting with the charts the same way I do candle or line charts. The support and resistance (as well as break-out) levels are so much clearer on P&F charts, but I like to have the time component present to project measuring rules or price targets based on consolidation or the like. P&F has its own type of patterns and rules, but I need to learn to visualize them due the fact that they don’t pop out as naturally to me as other charts do.

    Nevertheless, I agree that there is some sort of bullishness in the market, perhaps due to unknown good news ahead that the market is already discounting!

    Thank you for the comment!