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Technical Watch > Categories > Technically Speaking > Sign of the Bear
 
 


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fib_1618

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Posted Reply with quote  #1 
The "Sign Of the Bear" pattern develops when after an advancing pattern sequence (price or otherwise), the pattern will drop sharply from its peak - move up in reflex to make a lower high than the preceding peak - move lower again but not as low as the bottom made after the initial drop - move higher again but fail to take out the reflex high recently made forming a double top, and then collapses under its own weight.

Shown below are some examples of the S.O.B. pattern and their respective outcomes.

The reasoning behind the SOB actually makes some sense if you think about it.

As an advancing pattern sequence moves closer and closer to its terminal state, less and less participation of the pattern sequence is the probable root cause of this same termination. As this same lack of participation of pattern continues to thin, it becomes more and more vulnerable to a push in the opposite direction that would equate to a void being filled that has already been created by the pattern moving higher and higher but without the proper broader based foundation for it to continue to do so. This causes a "critical" rally failure which helps to alert that a probable change of trend is in its beginning stages.

Once the initial decline is finished, the longs once again attempt to reinforce the prevailing trend prior to the decline, however, the same participation value seen at the top only allows the reflex to cover up to half of the initial debacle. Exhausted and frustrated, the opposite force again takes over and pushes the pattern lower, but the bulls refuse to give up the fight and hold this retracement at a higher level than what came before. This excites the longs, and once again they attempt to re-establish to what had been the prevailing trend, but this time the conviction is so shallow that they are only able to repeat the highs recently made, run out of ammunition, and the new trend in the opposite direction begins.

Some final notes on the S.O.B. pattern:

1) The actual "kick off" of this pattern comes when the reaction lows separating the double top formation is violated.

2) Once set in motion, the pattern sequence will either move sideways to lower or can collapse completely solely dependent on the trading environment during the time in which the pattern traces out. In any event, the previous advancing trend, prior to peak extreme, has been terminated.

3) Volume considerations are not as important as having the "right look" and the accompanied lack of exhausted momentum of the pattern.

4) As a general rule of thumb, the double top pattern will tend to move within the vicinity of its 200 day EMA.

5) Depending on pattern representation, the second top may move higher than the first top by a relatively small margin. Situations like this usually happen in highly emotionally charged and/or thinly traded markets.

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"You know the very powerful and the very stupid have one thing in common - they don't alter their views to fit the facts, they alter the facts to fit their views (which can be uncomfortable if you happen to be one of the facts that needs altering)" - Dr. Who - 1977

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Posted Reply with quote  #2 
Very interesting Fib. If BKX turns down now, will it match the pattern? Can the rest of the market have continued bullish move without banking sector, or asking differently, can we have a prosperous economy without any bank?

Another chart that shows similar pattern is DJUSRE (corporate real estate). HGX is already dead. So, it seems we will have the next phase of the boom without banks, shopping malls, houses and apartment complexes
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fib_1618

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Posted Reply with quote  #3 
Quote:
If BKX turns down now, will it match the pattern?

It would have the "right look", but using momentum considerations, the current BKX pattern would be questionable at this point as to its pattern validity.

Quote:
Can the rest of the market have continued bullish move without banking sector, or asking differently, can we have a prosperous economy without any bank?

The simple answer is, yes, we can have a continued bull move in stock prices without the banking sector for many months. History has shown that this sector can not only lead longer term equity patterns in both directions, but it can do so by a year or two (similar to that of the A/D line).

Quote:
Another chart that shows similar pattern is DJUSRE (corporate real estate). HGX is already dead.

The DJUSRE is supporting the same chart characteristics as that of the IYR which is currently on a buy signal. As far as the HGX is concerned, yes, it has seen better days, but continues to show good bottoming characteristics at this time. It should also be noted that it too provided a nice example of a SOB pattern prior to the sectors collapse last year.

Fib
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Dave's LinkedIn Profile

"Beware of false knowledge; it is more dangerous than ignorance" - George Bernard Shaw

"As for it being different this time, it is different every time. The question is in what way, and to what extent" - Tom McClellan

"An economist is someone who sees something happen, and then wonders if it would work in theory" - Ronald Reagan

"What we see depends mainly on what we look for" - John Lubbock

"The eye sees only what the mind is ready to comprehend" - Henri Bergson

“Answers are easy; it’s asking the right questions which is hard” - Dr. Who - 1977

"You know the very powerful and the very stupid have one thing in common - they don't alter their views to fit the facts, they alter the facts to fit their views (which can be uncomfortable if you happen to be one of the facts that needs altering)" - Dr. Who - 1977

Demagogue: A leader who makes use of popular prejudices and false claims and promises in order to gain power.
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