One of the most powerful market indicators is giving us a strong message this week. This indicator is the “bearish rising wedge.�
A bearish rising wedge is a technical pattern that is formed as a stock price moves higher on decreasing volume, as the daily trading range becomes more and more narrow. The chart below of the S&P 500 is a great example of the wedge.
This pattern fools a lot of investors. Since the stock price is advancing, investors often misinterpret the pattern as bullish. However, the wedge usually breaks to the downside. The result is often a sharp decline that wipes out all of the gains from when the pattern began. It is a pattern that many bears use to short stock or play different bearish option strategies. Below is a sample of a variety of stocks indicating the same thing. Notice the variety of sectors shown below. This is not an isolated case in the current market.
Happy Trades!
Jeff
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