Technicians See A “Wedge”

Many of the respected technicians I follow see the market indexes currently forming a wedge.  This is a series of lower highs and higher lows that form a tighter and tighter range (see, for example, S&P Wedge Chart and QQQQ Wedge Chart). 

Ultimately, according to the technicians, these wedges reflect uncertainty about market direction and get resolved by breakouts on heavy volume to either the up or downside.  While there is agreement about the wedge, there is, I should mention, disagreement about which way it will be resolved.

See, for example, Scott Redler, T3 Capital (5 Min CNBC Clip), Tim Knight “Triangle Man”, and Michael Kahn in his latest “Getting Technical” column (subscription required) today on Barron’s Online.

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This fits with my own view about market sentiment.  There is a lot of disagreement and conflicting views out there about where we are in the cycle. 

Has a recession been priced in?  Do the Jan 23 lows mark the bottom?  If you believe we’re headed for a slowdown or mild recession, it seems reasonable to expect an upside breakout.

On the other hand, if you believe we’re headed for a more severe recession and that the worst is yet to come, you might expect a downside breakout.

It will be interesting to see how this all gets resolved.