A Terrific Technical Analysis Article
I came across this article today, An Unsettling Chart Pattern May Be Taking Shape and thought it’d be great to share. It echoes my allusion to the potential for a stock market correction in the near future as mentioned in my post on getting ready to trade PJC but with more of a solid explanation. It’s really quite a good analysis which includes some analysis on a few stocks of note. One of particular interest to me, was the analysis on a pick of mine, J. Crew Group, which discusses the orderly pullback from the gains it has made over the last month.
The same worries that lead me to believe that we were due for a market correction in February continue to exist today – subprime, an end to the buyout/merger boom, interest rates, slowing economy, etc. I am, however, not ready once again to declare myself a bear and run for the sidelines. After getting my hat handed to me trying to trade the volatility earlier in the year, my investment strategies are now less based on technicals and more based on what I think are either market leading stocks or stocks with little downside left. As such, I am ready to weather the storm (as long as the storm doesn’t turn into a hurricane). Further, I am more skeptical of some of the issues that seem to be worrying bears everywhere. It seems many investment houses, Bear Stearns not withstanding, didn’t quite feel the impact of subprime. Fallout seems minimal beyond the Alt-A market and bond yields seem to be comfortably sitting around 5.1%. Even the American consumer seems to be unfazed by higher interest rates and gas prices. Who knows? When the next earnings round comes, the American consumer may surprise again and we’ll be handsomely rewarded with yet another pop in stocks.
Yes, we’re on the edge now and all it would take is one of the several harbingers of a market correction to pan out and steal the gains from this year. This time around, there clearly is technical weakness in the markets which is slightly different from a one-day 5% drop throughout the globe. This is both good and bad. You’ve likely made back whatever you lost on February 27th and now there’s more than fair warning of a likely correction. If you’re not defensive or still relying on trading lots, it’s definitely time to take a step back and rethink your portfolio.
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