ChartWatchers

RISING WEDGE ON RATIO CHART BEARISH

Chip Anderson

Chip Anderson

President, StockCharts.com

Over the past two week's, sentiment has gone from "highly bearish" to "highly bullish" - a change in circumstances that shows confusion above all, but the fact remains the current rally in the major indices has reached the important 50%-60% retracement levels typical of countertrend rallies. Therefore, there is reason for caution at this junction, and we find other "esoteric" reasons for being so: a change in leadership between "mid-cap" and "small-cap" shares that has accompanied the transition from bearish to bullish to bearish markets. Quite simply, we use the S&P 400 and S&P 600 ETFs - MDY and IJR (exchange traded funds). In bear markets, MDY tends to outperform, in bull markets IJR outperforms.
 
This brings us to our ratio chart, which is showing distinct signs of a "rising wedge" bottom formation, which would imply the current rally is in the process of "stalling" and will not reach new highs as many anticipate, but rather resume their recent trend towards lower lows. In our opinion, the determining factor is the ration breaking out above their 180-day moving average. Be prepared.

Chip Anderson
About the author: is the founder and president of StockCharts.com. He founded the company after working as a Windows developer and corporate consultant at Microsoft from 1987 to 1997. Since 1999, Chip has guided the growth and development of StockCharts.com into a trusted financial enterprise and highly-valued resource in the industry. In this blog, Chip shares his tips and tricks on how to maximize the tools and resources available at StockCharts.com, and provides updates about new features or additions to the site. Learn More