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BEHIND THE MONEY: Dow's Bermuda 'Triangle' Points to More Lost Returns Ahead, Analysts Say
The Dow average [.DJIA
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] is forming a pattern that's generating a lot of chatter among the technical analyst community (there's a community?) and the Fast Money traders. Using a bar chart for the Dow, draw a trend line from the September intraday high diagonally down, touch the November 4 high and keep going. Then draw a straight line across the lows, touching the October 10 intraday low and the low made during the day last Thursday (right before the monster intraday rebound) until you connect with the hypotenuse. You're looking at a right triangle, also called a wedge among chart worshippers. The Dow is clearly bouncing around within this triangle, posting lower high after lower high.
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CNBC.com |
"We know only that 'triangles' such as this one tend to resolve themselves to the downside,'' writes Dennis Gartman this morning in The Gartman Letter, which is standard reading on Wall Street trading floors everywhere. But he's not alone by any means.
"A case can be made that the equity base could be a 'triangle,' which is often a continuation pattern within a dominant trend," said Mary Ann Bartels, Merrill Lynch's Technical Research Analyst, in a note to clients yesterday. "In the S&P 500's case, the triangle carries the risk for a breakdown" of another 13 to 19 percent, said Bartels, who was the No. 2 ranked technical analyst in the latest Institutional Investor magazine poll.
And our very own Jeff Macke said on the Fast Money conference call this morning, "It sounds silly, but I've made a lot of money trading evil triangles." He cautions that a few more fake rallies within this triangle could point to a pretty severe breakdown as frustrated investors throw in the towel. You can read more of Macke's commentary on Minyanville.com.
Are enough people talking about this Bermuda "triangle" that it will become a self-fulfilling prophecy? That's pretty much what technical analysis is all about. Voodoo or not. It is being talked about enough to give some credible traders some pause.
If we form yet another lower high today (which looks like the case), watch for the triangle chatter to get even louder.
John Melloy is the Senior Editorial Producer for Fast Money. Before joining CNBC, he was an editor for Bloomberg News, overseeing the U.S. Stock Market coverage team.______________________________________________________
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