Presence of Catch

WHERE’S THE CATCH?  

As the market starts to trade higher once, it enters a trend phase. Generally speaking, the market will pause or consolidate before resuming the uptrend. However, there lies the catch and what substantiates the Random Walk theory. Not at all times do markets resume an uptrend from the consolidation phase. False breakouts and reversals do occur. Most bullish chart patterns, such as flags, pennants, rising wedges, and ascending triangles, are just an assortment of classical technical continuation patterns that exist in trends. These work in bar charts and candle charts. The larger patterns tend to give a clue to the next move by forming in the direction of the trend; the smaller corrective patterns, such as flags and triangles, lean away from the trend. Sideways channels that form after a bullish trend have a tendency to support off a past breakout point or an old high.

Figure 2.3 shows weekly chart of Apple Computer; it had an amazing run after it went out of a period of congestion and blasted off to the upside. Notice that after the bullish price direction resumed, prices do not make lower closing lows until the second week in December.

After that, as you can see, it did move higher at the start of 2006; but the tweezer top formation (equal and opposite) contained the rally, and prices ended back where they started.