A really significant pattern that I think you need to check out has developed on the Nasdaq Composite. This pattern is so accurate that there have been no losing trades in more than 2 years with it.
Going back to the July period of 2008 you can sketch three circles over the highs of a distribution pattern. The reason why I call it a distribution pattern is the fact that officially, it isn’t really a Head and Shoulders or some other pattern. From evaluating the pattern though, we do observe that it’s a distribution pattern that results from profit taking and shorting.
The three circles may be drawn over a eerily similar pattern that started in January of 2010 which ended last week.
If we do a trade triangle layover you can see that we have had a down monthly triangle. The reason that this really is so substantial is that the monthly triangle is used to ascertain the longer term trend that is down. Just how precise is the monthly trade triangle? Looking at the chart you can see that each monthly trade triangle since April of 2008 continues to be accurate. Making use of my Guerilla Stock Trading method of a 5% to 10% gain and also a 5% stop loss, we would have made money on each and every monthly trade triangle signal since April of 2008!
The weekly trade triangle is still up meaning the monthly trend and the weekly trend are in contradiction. The question you have to think about all boils down to whether the longer monthly downtrend will pull the weekly trend lower, or if the weekly trend has turned positive first and the monthly trend is soon to follow.
It looks like the case for a downward swing such as the kind we had back in 2008 when this pattern formed is a bit more likely. The reason why, beyond the truth that the larger trend trumps the shorter term trend, would be that the U.S. government came out last week and all but officially declared the economic recovery is now dead.
The brand new crises we’ve got is the fact that because of so many people out of work, state budgets must be cut. The cuts needed are so extreme that in certain government sectors, 50% of the workforce has been laid off.
Perhaps Caroline Baum of Bloomberg News said it best: That which you had would have been a government-approved course of amphetamines (to keep it up), antibiotics (to prevent infection) and antidepressants (to make it feel better). It suffered frequent steroid injections from both monetary and fiscal authorities. And it continues to have no actual muscle mass.