Do you guys remember that great E-Trade commercial from the dot.com era where the distraught trader jumps out his office window? He was on the first floor of his house and landed comfortably. I'm wondering if the market just did something similar. I've sort of felt like Ferris Bueller's sister this week with talk of "The Triangle" everywhere I turned. Yes, it resolved to the downside yesterday on a pickup in volume (some technically driven piling on was likely), but did it land on a thick, fluffy zone of support?
The following chart suggests that might be the case:
Some chartists are real sticklers when it comes to drawing support and resistance lines. I prefer the extremely dull crayon technique. You can see that we're now tickling the top of a roughly 20-point range on the S&P that has called the market home for months. The primary trend remains down–and it's not safe to be long in this environment–but this might be strong enough to hold through the year. The point is to be tolerant of more frustration. 2011 has been maddening and trendless.
Why are we suddenly expecting the final six weeks to be different? I've included below a guess as to how this could mutate into another short-term consolidation pattern. While allowing for some additional downside, stocks may soon find a level from which to begin the putative Santa Claus rally.
by Brian Thomas for varsityinvestor.com