Early Morning Bear Flag

Mar 26, 2008: 9:44 AM CST

The Dow this morning formed a near idea bear flag pattern that revealed itself to savvy traders.

The only thing keeping this pattern from being ideal was that the market was unable to retrace back to the falling 20 period moving average, which was a further sign of market weakness developing.

Ideal entry (short) would have been when price violated the rising lower trendline around 10:30 at the $124.30 price level with a stop above $124.50 with a target being the “measured move” of the prior flagpole (projected downwards) which equaled roughly $123.70.

A positive momentum divergence has developed (blue line at bottom) which will likely limit further significant downside potential today. A trading range or ‘probing phase’ could develop with back-and fill conditions ahead in the short term.

Further solidifying this possibility is the fact that the daily DIA sits directly on the daily 50 period moving average, which could provide temporary support in the meantime as well.

When you find patterns in the market, it can be a good idea to print off the chart and document the pattern so that you can recognize it easier next time and act quicker with entries, targets, and stops.


3 Responses to “Early Morning Bear Flag”

  1. Anonymous Says:

    First, I’d like to thank you for the work you put into this blog. I enjoy reading your posts and do learn from your perspective. This past weekend I was reading an archived post entitled “Rules of the Game and Victory through Manipulating Them.” It seems that just when you were getting to the meat of the subject I was left in suspense. My question is; Have you written a follow-up to that post? Specifically the attainment of victory in manipulating the rules part. Perhaps you followed up on that previous post and I haven’t found it in the archives? Again, thanks for your blog.

  2. anon Says:

    new format loads much faster! much easier to read……………great blog content. love these morning flag patterns!!!!!!!!!!!!!

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