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

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