Do You Really Thnk We're At a Reversal?

First off, know that I am writing from a short bias since I own SH.

Recently the S&P has shown several amazingly regular, straight trends:

A trend is an overall direction over a given time. Notice also that within those trends, there have been reactions which oscillate up and down mostly within the channel. The series of highs and lows move incrementally and uniformly over time.

From a classic text, Technical Analysis of Stock Trends, I present support for this premise:

“Stock prices move in trends. Some of those trends are straight, some are curved; some are brief and some are long-continued; some are irregular or poorly defined and others are amazingly regular or “normal,” produced in a series of action and reaction waves of great uniformity.” pg 56.

The text goes on to present an important point to consider now:

“Sooner or later, these trends change direction… when a price trend is in the process of Reversal, either from up to down or from down to up, a characteristic area or “pattern” takesshape on the chart, becomes recognizable as a Reversal Formation.” pg 56

(I would also add that breaking through key resistance (a ceiling which keeps a stock down) or support (keeps the stock above a certain price) is another tool in spotting and confirming reversals.)

Something which has helped me start becoming a more confident, disciplined investor is learning to spot reversal patterns and support/resistance levels. They will never be perfect indicators, but will shed light on what the market is doing, and where it is going.

Take a look at this chart again, and tell me : Do you think we’re reversing upward, or are we due for another leg lower in the current downward channel? If you do see a reversal pattern, let us know!

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Shifting to a consideration about institutional buyers with respect to these market trends:

Sometimes I suspect that “smart money”, (aka Institutional buyer/seller, like mutual funds and hedgefunds) knows what to expect in this upcoming earnings season. If “they” do actually really “control the market”, here’s what I suspect has been going on:

Take all that as HIGHLY speculative, and probably ignorant.

Note: “Smart Money” keeps it’s focus on the longer-term trend, as it holds huge amounts of stock and cannot nimbly get in and out of the daily or even weekly action. They take advantage of reactions in the larger trends, making money all along as the stock market goes down:

Huge gaps up and down in the market could be a sign of manipulation by institutional buyers/sellers. If “they” do expect an up-side reversal here, they’re hiding that fact pretty darn well in market price action.

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