Beware the Megaphone Pattern
The basic message is that we’re still on a bullish run. The charts are telling us this – in the simplest terms because they keep rising. And we must adhere to the addage to trade what we see.
However, when I look at the indices I see some things to give me some concerns for how long this run will last.
The QQQ (Nasdaq ETF) is currently forming a potentially constructive consolidation pattern in the last few days. That’s the positive. But on the debit side, its OVI is spending more time in negative territory and there is a multi-month megaphone pattern forming, with the price hovering at the top end of the megaphone. Furthermore, volume is not impressive if you’re looking for reasons to be bullish.
The same can be said for the S&P’s ETF, the SPY where volume is unimpressive given the gains the index continues to make. On the credit side, the OVI is certainly more positive than negative and there’s another bull flag occurring right now. But there is also the spectre of the megaphone pattern, where the current price is hovering at the top end of the megaphone range.
The Dow, represented here by the DIA, is also ambiguous in that volume is unimpressive as new highs are being made.
Be on your toes. Have your stops in place. The market is still officially bullish – many indicators are telling us this. But the OVI and volume are mixing up the story, coupled with the lurking megaphone pattern.
All the best
Guy