Friday, March 26, 2010

Yesterday's Market

Prices gapped higher at the open (A) and then formed a double top (B). Prices moved through support (C), dropped, and then consolidated in an upward sloping pennant pattern (D). Prices then fell to the 200 day EMA (E), rose in another consolidation move and finally fell through the 200 minute EMA (F). Also note the increased volume on the sell-off at the close (G).

A.) The transport average has broken its uptrend on

B.) Increase volume.

Finally -- was yesterday a key reversal day in the market?

According to the standard definition, of course, a key reversal day occurs when the market hits a new intraday high and then closes down. And that, the stock market did on Thursday.

At one point in Thursday's session, in fact, the Dow Jones Industrial Average was up nearly 120 points, reaching the 10,955 level -- a new high for the bull market that began in March 2009. Reclaiming the 11,000 level seemed like a sure thing.

And, then, the rally abruptly lost steam. By the close, the broad market had slipped into the loss column for the session -- though the Dow finished with a 5-point gain.

Dramatic as Thursday's reversal was, though, its bearishness -- in and of itself -- is probably of just short-term significance.

That, at least, is the argument made in the latest edition of Technical Analysis of Stock Trends, the classic textbook on technical chart formations. Written originally many decades ago by Robert Edwards and John Magee, this textbook was updated as part of the latest (ninth) edition by W. H. C. Bassetti, who is an adjunct professor of finance and economics at Golden Gate University.