Hope Springs Eternal in the Bearish Breast
The "Ten Year" post (below) is more interesting than this one, but I wanted to at least mention that today's QQQQ shows a nice bearish engulfing pattern. I've highlighted other recent instances of this candlestick pattern. It doesn't always precede a fall, but it's a pretty good clue.
Of course, what we want to see this lead up to is a break below 40.16 on the QQQQ, which will turn this into Peanut Butter Jelly Time.
4 comments:
I went back to the beginning of the "bull" market, March 03 and did an analysis of this pattern (bearish engulfing). Here are my findings. Given 766 possible events (trading days) there were 171 instances of bearish engulfing candles.
I looked ahead from those instances and found that the next days return, on average was .31 per share. 10 days later the return was -.34 per share and 20 days later the return was -.69 per share.
My conclusions are that a bearish engulfing provides a near term opportunity for profit but you must watch your position carefully because it is more probable that it will lose over the longer term.
Does a bearish engulfing signify a top? No, of course not, just an opportunity several days in the future to buy a dip - and it always will.
As I am fond of saying - the collapse of '29 was just an opportunity to "buy the dip." And for those of us who are neither bulls nor bears but risk managers we were there. We will be there in the future as well. Hope you will too.
Believe it or not, I'm not a permabear. If you use prophet.net and look at the Published Notes & Charts, you'll see my track record there averages something like 70% over the long haul; and the big winners are long recommendations. I agree the bearish engulfing pattern is not a huge slam-dunk. It's just one DAY, after all; not exactly a big trend! And, judging from the market's performance today, looks like another up day for the market for an overall crummy week for the bears.
I think I'm going to hold off on any fresh post today; there's simply just not much to say; Friday was really ho-hum, and The Ten Year View really says it all for me right now.
I am blown away at how good the comments from my readers are; keep 'em coming!
Tim:
Over at another site Robert McHugh (many of his articles are on safehaven also) puts out multiple summaries a week about the market and has also been bearish for quite a while.
Since this past fall when he expected a bigger drop then we got, and back to last year, he has been increasingly focused on the role of the fed in pumping liquidity (M3) into the market when it starts to drop to much in order to bolster it back up and the fact that this is the primary reason they are no longer reporting this data.
While he keeps expecting, technically, a very large drop, he just isn't convinced the fed will let it happen but may rather continue to bolster the markets with liquidity on any sign of real weakness.
Your overall view is quite bearish. I was wondering if you have thought about this issue and how it may impact your views.
Mike
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