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Bearish Stock Market Wedge Patterns- Yorba TV Show

Stock-Markets / US Stock Markets May 01, 2008 - 11:17 AM GMT

By: Anthony_Cherniawski

Stock-Markets Best Financial Markets Analysis ArticleToday I want to talk about wedges (not wedgies).  Especially the bearish kind of wedge.  We have them in a lot of indexes, namely in the SPX, the NDX and the EEM.  Bearish wedges are continuation patterns of an existing trend. A wedges is formed by a counter-trend correction and it leans against the prevailing advance or decline.  In this case, a rising wedge is bearish and a falling wedge is bullish.  The wedge pattern usually retraces one-half to two-thirds of the prevailing move before failing or reversing.  Volume usually contracts during the formation of the wedge, while increasing after the break down or breakout.  My source is John Murphy's book, Technical Analysis of the Futures Markets.


By the way all five of the largest stock mutual funds sold in the US have bearish wedge formations with reversals.  I have analysis on two of them for our viewers.  the first is Growth Fund of America.  The rally from the March low isn't exactly a rising wedge, but is a relative of it.  What is more intriguing is that the wedge is forming a right shoulder of a head-and- shoulders formation.  Rising wedges are meant to be completely retrace in very short order, and when they do, that will trigger or validate the head and shoulders pattern with a consequent decline of 33% fro the October top.

The last chart is the Fidelity Contrafund, which has a very distinct wedge and is completing the final stage of a head and shoulder with a target of $50.00 per share, also a 33% drop from the top.  Remember, these projections are the minimum declines.  These are two very popular mutual funds. They both own a lot of financial stocks, so beware of the risks involved in owning these funds.


Which will it be? Stay tuned! on www.yorba.tv every Thursday at 4:00 pm EDT . You can find the archives of my latest programs by clicking here .

Please make an appointment to discuss our investment strategies by calling Claire or Tony at (517) 699-1554, ext 10 or 11. Or e-mail us at tpi@thepracticalinvestor.com .

Anthony M. Cherniawski,
President and CIO
http://www.thepracticalinvestor.com

As a State Registered Investment Advisor, The Practical Investor (TPI) manages private client investment portfolios using a proprietary investment strategy created by Chief Investment Officer Tony Cherniawski. Throughout 2000-01, when many investors felt the pain of double digit market losses, TPI successfully navigated the choppy investment waters, creating a profit for our private investment clients. With a focus on preserving assets and capitalizing on opportunities, TPI clients benefited greatly from the TPI strategies, allowing them to stay on track with their life goals

Disclaimer: The content in this article is written for educational and informational purposes only.  There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information in this article is the opinion of Anthony M. Cherniawski and subject to change without notice.

Anthony M. Cherniawski Archive

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