The Hound of the Baskervilles
When a reliable chart pattern or indicator does not lead to the action you expect and prices move in the opposite direction, this is what Dr Alexander Elder referred to as "The Hound of the Baskervilles" signal.
When a Head & Shoulder pattern gives a strong sell signal but the market refuses to collapse and rallies from the right shoulder, it gives the Hound of the Baskervilles signal. When prices rise above the 'head', it is time to cover shorts, reverse, and go long.... ( page 105, Trading For A Living - Elder ). This is exactly what has happened to our closely watched and valid H&S pattern spotted recently !
After the refusal by STI to submit itself to the H&S pattern, the index has risen 415 points almost in a straight line since July 14. I know everyone is tired of being cautioned and so do I am tired of cautioning. But the index is very over bought now ( RSI = 79.6 ) and any upside is limited without a decent pull back.
In my post dated July 1 "Frustrating Moment", I mentioned " I am certain that the index will break 2,400 in the intermediate term ( unless it is a failed Wave 5 ) and probably hit 2,600 ~ 2,800". At that time, STI was 2,352. Today, STI is 2,681.
Moving forward, I have two scenarios for STI : We may still hit 2,800 depending on how deep the pull back is. If the pull back is shallow and bounce back fast, the last significant high will be recounted as 5iii, the pull back target is 5 iv and 2,800 is 5v. If the pull back is hard and we can't return to the last significant high, 5v is met ( last significant high ) and we are heading for a deeper correction.
While the market may not reward you just because you are diligent or patient, it will absolutely punish you if you are slacken or impatient. Although the rally is over extended and the pull back is overdue, I won't let the market suck me in. In fact, I have offloaded everything I have by today waiting for new opportunity !When a Head & Shoulder pattern gives a strong sell signal but the market refuses to collapse and rallies from the right shoulder, it gives the Hound of the Baskervilles signal. When prices rise above the 'head', it is time to cover shorts, reverse, and go long.... ( page 105, Trading For A Living - Elder ). This is exactly what has happened to our closely watched and valid H&S pattern spotted recently !
After the refusal by STI to submit itself to the H&S pattern, the index has risen 415 points almost in a straight line since July 14. I know everyone is tired of being cautioned and so do I am tired of cautioning. But the index is very over bought now ( RSI = 79.6 ) and any upside is limited without a decent pull back.
In my post dated July 1 "Frustrating Moment", I mentioned " I am certain that the index will break 2,400 in the intermediate term ( unless it is a failed Wave 5 ) and probably hit 2,600 ~ 2,800". At that time, STI was 2,352. Today, STI is 2,681.
Moving forward, I have two scenarios for STI : We may still hit 2,800 depending on how deep the pull back is. If the pull back is shallow and bounce back fast, the last significant high will be recounted as 5iii, the pull back target is 5 iv and 2,800 is 5v. If the pull back is hard and we can't return to the last significant high, 5v is met ( last significant high ) and we are heading for a deeper correction.
Labels: Market Direction
posted by Market Wizards @ August 03, 2009
Comments: 0
