NASDAQ Target to the Downside:
"...how he gets the measurements for a few hundred point drop from seeing this pennant..."
You are correct to question this analysis. First of all, he is referring to the NASDAQ 100 Index. Over the past few days, a textbook bear flag, NOT a pennant was formed:
ottographs.com
A flag is just that, something rectangular, that looks like it is blowing in the wind. A pennant is just that, a triangular shaped pattern, just like the ones the kids wave at the old ball game.
I can't speak for how Ed does it, but the legend of TA, John Magee, in his book Analyzing Bar Charts for Profit, provides measurement "formulae" for flags, symmetrical triangles, rectangles, and head and shoulders patterns. He does not provide measurement formulae for pennants, unless we want to call a pennant a triangle, which he does not. I think the way to differentiate a pennant from a triangle is how long it takes to form. A pennant should last 4-6 bars (in this case, days, since we are looking at the daily chart), just like its cousin, the flag. Triangles often take weeks or more (see RMBS daily chart for a "yikes!" example of a triangle).
So...using the Magee formula for flags, we measure from the low of March 12 (low of flag) to the high of March 14 (high point of flag) and that produces a "measured move" of 87.59 points. We then take the point where the flag breaks to the downside, let's say the low of March 15 at 1940.94, and subtract 87.59 points from there to produce a target of 1853.35, which was almost fulfilled yesterday.
The "double bottom" that he writes about is where I have marked "2B Test of Bottom". Please note that bear flags are supposed to be small bounces in a downtrend, and it "should" go further down, but we will watch how this 2B is tested first, before drawing any further conclusions.
Teresa |
