Technicians Getting Whipsawed
It has been a great summer so far for short-term traders as the market provided at least four multiday swings to ride. Technical analysts, on the other hand, have been flip-flopping from one indicator to another and always seem to be one step behind.
While traders traded, the indicator in vogue with stock-chart watchers in late June was the golden cross. Theoretically, when the 50-day moving average crosses above the 200-day average, the coast is finally clear for the bulls.
Within two weeks, the indicator everyone from tech analysts to business-news anchors were watching was the “head-and-shoulders”. According to the minions, the Standard & Poor’s 500 broke down from that pattern one week ago and was poised for a quick drop to the 810 area.
We got [a] curveball Monday as the week started with a positive bang. Now analysts are scrambling to figure out what happened. Was it support from the 200-day moving average itself? Or was it the large percentage of bearish investors who were coming on board the bull train?
– “Trader’s Dream, Chart Watcher’s Nightmare” (subscription required), Michael Kahn, Barron’s, July 15