Re. potential big picture COMP bull-flag: Qualitatively I would say this Dec-Jan-Feb period has way too much structure to be a likely bull flag.
It does qualify as one in the sense that the angle of descent is visibly shallower than the preceeding ascent.
Some of the interpretation, I think, is a matter of attitude: I like to think of flags as relatively short-term things, so for example, a bull flag at the top of a two-month long steep rally may be 3 weeks long.. after that it becomes something else. A similar thing happens with triangles and is easier to grasp in that context: once you have made it more than ~2/3 or 3/4 way to the apex, if you are still within the constraints of the triangle, it loses its meaning. I look for the same thing in flags: they do sometimes just keep streching on, and at some point no longer serve the same predictive purpose. The decision is simply more difficult to make than with a triangle.
One longer-term pattern that a flag can develop into is a wedge. Note that a channel defined by parallel lines is not really a wedge. A wedge is useful as a predictor because it becomes narrower as time goes on and so one can put some time constraint (although often vague) on when the wedge might break in the expected direction.
What I believe we have on the COMP chart off of the Dec high is a straight channel. Now, it is always safe to say that if the price is dropping (regardless of pattern), it will one day rise ;-) However, the usefulness of a channel is that it defines a trend and at any given time the price is more likely to stay within the trend than break out of it. I believe that defines the current situation.
Furthermore, the overriding pattern that I see right now is a Head & Shoulders in the Oct thru Feb timeframe. If you draw the Neckline using end-of-day values then it works out that the H&S was confirmed by the end of January, and was just re-tested at 1346 at Tuesday's close. I had entirely overlooked this Tuesday night when sweating out whether the rally might break at 1355,1365 or 1380.. I guess 1355 was possible, but am not in retrospect surprised that we turned right at 1346.
The implied minimum target of this H&S on the COMP by the way, is ~1140.
I should note that if it was not for the confirmed H&S, I would have to say that the existence of a channel makes it at least possible that we at this point travel all the way to the top boundery, now just over 1400. I don't think that will happen at this point. In fact, if the H&S target is reached anytime in the next month, we will be breaking out of the channel to the downside.
Sorry about the wordiness.. may start drawing pictures soon.. can't wait. |
