Exposing Ideas to the Envelope of Serendipity

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Thursday, August 20, 2009

Bullish Continuation Patterns Taking Shape

While the market's impressive resilience may defy logic and the expectations of many traders looking for a more significant correction to take hold, recent market and stock action has been undeniably bullish. It is also characteristic of bull market behavior for price runs to correct through sideways consolidation as opposed to more significant pullbacks, often frustrating both bulls wanting to get long at more attractive prices and bears looking for the trend to reverse out of technically overbought conditions. With increasing numbers of bullish continuation patterns showing up in sector ETFs as well as in individual stocks, it looks like this may be what we're encountering. The energy and financial sectors have formed patterns suggestive of further upside, and many other groups including transports and housing are also looking increasingly positive. Precious metals are showing signs of life, but still have more work to do and have been more erratic as they struggle to reconcile low inflation with a weak U.S. dollar.

Until we see more than a day or two of evidence to the contrary, the combination of bullish chart patterns and market action argue for buying the dips-- when you can catch them.

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