Tread Lightly My Friends - John Rothe | Portfolio Manager, Quant, Tech Geek, And Sometime Superhero To My Kids

Tread Lightly My Friends

Don’t get too excited about this market, yet. While the past few weeks have shown some impressive gains in most sectors (excluding finance):

sectors - john rothe

The S&P 500 index is in the process of forming a rather large flag and may be signalling a resumption of its downtrend:

spx flag

For those not familiar with flag patterns:

Investopedia explains Flag:
Flags and pennants are among the most reliable of continuation patterns and only rarely produce a trend reversal. The only difference between the two patterns is that a flag resembles a parallelogram (or rectangle) marked by two parallel trend lines that tend to slope against the prevailing trend. The pennant, however, is identified by two converging trend lines and more horizontal which resembles a small symmetrical triangle. The important thing to remember is that they are both characterized by diminishing trade volume and though different, the measuring implications are the same for both patterns as demonstrated in the above illustration.

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Personally, I still would like to see the market trade above it’s 50 day and 200 day moving average before getting too aggressive.

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