Wednesday, April 22, 2015

Big-picture view of stocks

As we continue to chop around in range-bound trading, let's zoom out and see how we got here and where we stand. We'll use the Dow Transportation Average ETF, IYT, to do so.

First, let's look at the weekly chart of IYT:

A textbook H&S bottom started the current bull run. The measured-move price target for this massive 6 year pattern is around 160, which is the exact middle of the current range-bound trading as seen in the next chart focusing on the past 10 months:

IYT has been forming a rectangle since December.

Bears will be tempted to conclude: now that the price target from the massive H&S bottom has been reached, stocks are out of breath and it's time - finally - for a real decline.

And this scenario may come true. And I agree that the current run has been quite a sight, even unbelievable at times. The rectangle may turn out to be a reversal pattern that starts the decline. But it may not. And looking at this chart, it seems it could go either way. After all, who knows which way prices will go out of that rectangle. I try to remember that my primary goal as a trader is to participate rather than anticipate. So I'm going to do my best to be patient until the market makes it move.

Two other things. Note the uptrend channel. Also note a possible breakout from a possible 1-month ascending triangle.

Charts like these are why I am a classical chartist. A textbook pattern launches a massive run. And the price target happens to be the dead center of the current trading range. Such "coincidences" make classical charting so interesting and useful.

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