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Friday, 9 March 2018
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The Pennant

The Pennant - This fast-moving but unpredictable market has begun to manifest itself as a “Pennant” formation on the chart. This is a Dow Jones chart. The theory goes that when the market doesn’t know what to do next, it will fiddle about in the pennant, with ever smaller fluctuations, and then “break” out to the upside or downside. When it does, that’s supposed to mark the new trend, and you either jump on board or off depending which way it breaks. Simple enough in theory but hardly reliable. Still, it’s a bit of fun to watch which way it breaks.

This is a graphic showing the theory - if you take it to another level of fantasy like this, you can predict how far the market or the stock will break up or down when it does (from the height of the “Flagpole”).

Here is the chart of the ASX 200 over three years and I have manufactured a pennant at the end. The bigger uptrend resistance line is clearly at threat although it looks like we will open up a bit of a cushion today.

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