DOW bull flag - on to 9500?

Discussion in 'Strategy Development' started by inandlong, Nov 1, 2002.

  1. I know, I know... a lot of you don't care what the overall trend of the market is beyond the next 5 minutes. So instead of wasting your time and energy posting about the futility and absurdity of such a discussion, please accept my apology in advance for this burdening discussion and do not burden this discussion with comments and critique that are off topic. :)

    Now... looking at the daily chart of the Dow, an argument could be made that a bull flag has formed following a sharp rise from the October 10th low of 7197. What's more, this flag has formed its base along the 50 day sma!

    A pattern such as this often times breaks out and rises an amount equal to the amount that preceded the flag. Also, this second move happens in nearly the same time as the first move. The first move in this case took almost 2 trading weeks.

    A similar move up puts the Dow at about 9500... just a couple hundred points over the 200 sma...not a bad overshoot. Of course we are in a bear market so no overshoot at all is likely, thus making 9300 a reasonable target.

    What trading strategy would you use to best take advantage of this rally?
  2. ctrader


    I am looking at buying DIA but you could buy calls or dow futures if you want more juice.
  3. The market is definitely in a tight range, but the length of the flag is starting to get too long. Anything past three weeks is too suspect. This pattern is starting to lose accuracy.

    Also look at the other indexes, those patterns are less qualified.
  4. I agree with both of you. My work says if we hold above 8180, if there is a small correction,then the odds for going higher are very great. Surely we should break 9180 with a probable top of 9450. The odds are above 50/50 right now and growing but not up to the 75/25 level yet. Check the bid ask spread differences between DIA and DJX.:)
  5. ctrader


    Also, one could make the agrument that we are now in a cyclical bull, within the secular bear.

    One Ewave view is that a 5 wave advance started on oct11th... we are now working on wave 2 ( 2 and 4 are corrective waves), wave 3 would take us above 9000 for sure.
  6. ramuk


    While the market could very well rally, I see that
    Gold and Euro are also going up. Further, the previous
    rally has been on decreasing volume.

    The market has also factored in the rate cut. So,
    it should drop the day the news of the rate cut comes out.

    In any case, I will change my position and go long on a breakout
    from this trading range.
  7. ctrader


    I agree... a pull back makes more sense at this point. Wouldn't be surprised if their was a false break out through to new highs before the pull back tho
  8. i daytrade, but if i was gonna be a longer term player, my first inclination would be to go short around here..somewhere around the next down day... looking for new yearly lows...with a stop above the recent relative high..

    actually, i might go looking for stocks to sell, piker shares, just for fun.. monday will probably have some follow through after friday's run up.. so i'll see how we close and trade on tuesday..and take a few positions..

    of course, on the other side of the coin, i guess there's a limit to how many time we can go to the same "sell the rally" well.. so we might be in for another few more weeks (similar to 10/01- 1/02) of buying... or even a new bull.. i have no idea ! :)

    old story of we'll probably go down, ..unless we go up :)
  9. One could certainly argue that a breakout of the flag occured on Friday. I doubt the volume was there to validate it because it was Friday. I confess I do not watch volume at all...unless playing a pattern breakout.

    Follow thru will be important here. Or even a mild pullback to the flag and then a rally. The strength of the rally will be in the volume however.
  10. These swings have been going on for ages, and I've been taking a very simple line with them. If it's gone up a lot, buy a couple of very out of the money puts, write off the premium as a loss and then forget about it. Opposite for if it has gone down a lot. date them beyond the current month and if they come in...

    Worst way I lose my premium, most times I've made reasonable profits, and a few times I've made good profits. Spent part of the mid to late 90's doing it with the FTSE too in thse big swings inside the uptrend. Worked then too :D

    If you can think of a better way, for goodness sakes tell me please? :)

    #10     Nov 2, 2002