Securities Research Services

Wednesday, October 22, 2008

Continuation Patterns

The market is awash in continuation pattern breakdowns after yet another day of selling. We will take a look at these in a moment. First, we need to note that we are suspending the use of the SRS Risk Assessment Meter (RAM) for the time being. The character of the market changed when we experienced what can only be considered a market crash.

The RAM will be useful again, but it will take some time for the market to repair itself and for a new price mean to appear which we can use in our regression analysis.

Let's take a look now at pennant continuation patterns:

The stock CF, which we recommended to our subscribers this week, is a good example as there are a large number of stocks in the market exhibiting similar patterns right now.

CF is in a strong downtrend, represented by an ADX reading near 50 (35 is typically considered a very strong trend, so 50 is extreme). CF broke down from its consolidation area, which formed a pennant pattern on the daily chart. This should kick off a fresh leg lower from here.

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