Thursday, June 7, 2007

Technical Thursdays: Part II - On the Cusp?

Given the severity of the market decline thus far today, there are two technical analysis rules of thumb that bear noting:

1 - If the advance/decline and volume ratios equal or exceed 10x (up or down), a major trend change is underway.

2 - Chart pattern trendline breaks are significant, especially if they occur out of chart patterns that signify trend reversals.

As of 2:30 PM today, both of the above conditions are met. The up/down ratios for both stocks and volume is >10x and the chart pattern reversal - Rising Wedge* - has solidly broken its uptrend line.

If all conditions hold until the close, expect market technicians to trumpet the above.

My bet: the a/d and volume ratios don't hold and the market rallies enough by the close that will encourage the bulls (even embolden them, buy-the-dips mentality) and disappoint the bears (what's left of them). If I am wrong, things are likely to get very nasty.

*see May 24 blog entry

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