Pattern Warns of Further Decline Regardless of Fed

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On Wednesday, stocks rallied for the second consecutive day with the Dow Jones Industrial Average up 0.8% and the S&P 500 gaining 0.9%. Energy stocks and other commodity-based investments led.

An unexpected drop in crude stockpiles caused a run up in oil prices. A weekly Energy Information Administration inventory report showed stockpiles fell by 2.1 million barrels, causing crude futures to jump 5.7% to $47.15 a barrel.

Other commodities rose as well. Gold saw its largest one-day price gain in nearly a month, up 1.5% to $1,119 an ounce.

A Wall Street Journal survey of economists showed 46% anticipate an interest rate increase will be announced today. But many appear to be of the opinion that a rate hike now would damage an already frail economic recovery.

The Labor Department said consumer prices were down in August. The consumer price index (CPI) for August fell 0.1% from July. This inflation indicator was lower than forecast, which supports the view that the Fed will not raise rates yet. The central bank’s inflation target is 2%, while core prices have risen just 1.8% in the past 12 months.

At Wednesday’s close, the Dow Jones Industrial Average gained 140 points at 16,740, the S&P 500 rose 17 points to 1,995, the Nasdaq was up 29 points at 4,889, and the Russell 2000 added 9 points at 1,175.

The NYSE Composite’s primary exchange traded 863 million shares with total volume of 3.6 billion. The Nasdaq crossed 1.7 billion shares. On the Big Board, advancers outpaced decliners by 3.3-to-1, and on the Nasdaq, advancers led by 1.6-to-1.

Nasdaq Chart
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Chart Key

A rising wedge is a potentially bearish pattern that has formed on many charts, including that of the Nasdaq. This pattern is characterized by a sharply rising support line and a resistance line that rises at a slower rate.

On the Nasdaq, this pattern is reaching major resistance at the 200-day moving average, now at 4,917, while volume is falling and MACD is overbought.

IWM Chart
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We also see a rising wedge forming on the chart of iShares Russell 2000 Index (ETF) (IWM), i.e., the support line is rising faster than the resistance line as prices approach resistance

Conclusion

The slower rising resistance line of the bearish wedge indicates each new wave of buying is less powerful than the previous wave. Volume, therefore, declines as investment interest drops.

This bearish formation may be somewhat arcane, but it is nevertheless significant since it is well documented and currently appearing on many market leaders’ charts. It is especially significant since it has appeared on the charts of the Nasdaq and Russell 2000, both of which have led the advance. Now it is indicating a technical situation in which the market is growing progressively weaker.

No matter what decision the Fed makes, the rising wedge is warning of a further price decline in stocks.

For more information on the rising wedge and other chart formations, check out “Technical Analysis of Stock Trends” by Edwards and Magee.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.


Article printed from InvestorPlace Media, https://investorplace.com/2015/09/daily-market-outlook-pattern-warns-of-further-decline/.

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