Posted by: stockscooter | December 6, 2012

The Diagonal Triangle From Hell

Danger! Danger, Will Robinson…Force field in motion.  The force of the TIPS market is still up, but it can’t hold forever.  Actually the diagonal triangle has to resolve by late 2013, where the trend lines cross.   That’s a long time.  But, I’d be wary of alien beings that would want to take it down before then. How over-valued is this market?  If you were to accumulate  all the CPI adjustments since the bottom in 2008 (blue circle on the chart), the yellow line represents full and fair market adjustment.  Anybody buying these at higher prices than that are gonna feel the pain.  If I owned them, I’d be a seller in a big and hurried way.

I only see one thing that will bring down this house of cards. That is another down grade of the U.S. Treasury debt.  Anything else would just bid these up more.  So I suspect the next down grade is in our near future.  These will probably break the lower trend line before they announce it, because the government insiders will already be selling by then.

ZY243987-48

Here’s the url for the CPI numbers from the BLS, of which I referred.   ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

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Responses

  1. Hey Scott,

    The rising wedge you’ve identified has been invalidated due to not having broken out by 2/3 to 3/4 of its formation. Often times a parabolic move higher is observed when this occurs. Further, if you draw a horizontal line connecting the 2008 through 2011 highs as well as the lower trend line present; an ascending triangle (bull pennant), a slightly misshaped Cup & Handle, and an Inverse Head & Shoulders are all present displaying very bullish price action. A logarithmic chart measured move from the bottom of the iH&S to the neckline projected from the point of breaching the neckline higher should give a rough estimation of the final intermediate term target price.

    Best regards,

    Duncan Parket
    (MTA Member)

  2. Oops! One more thing…

    The last US Sov Debt downgrade coincides with the large spike higher on the monthly TIPS chart provided. Although counterintuitive, an additional downgrade could cause greater demand into TIPS as previously observed. Taking into consideration the technique from my previous post, a reasonable near term target price is likely in the 140 range.

    Cheers,

    Duncan

    • Duncan,

      Thanks for your response. It made me think and rethink, and that’s what this is all about. Combining great minds!
      I didn’t think about the invalidation of the wedge, it’s true. That’s because a diagonal triangle is a different sort of wedge, that ends a long-term impulse. This one I believe is full of fear, ergo the extension of time (check out my latest post on TIPs, today).
      As for cup and handles, it’s been my experience that even with a perfect pattern, they may not have much upside after the break. Especially, if the pattern is a long one. I can say the same for ascending triangles, because I’ve played these patterns in the past, with sorrowful results. Maybe I’ve just been unlucky with them, so I usually don’t look for them in my work. And they may just work better on daily charting, too. Thanks for bringing them to my attention, though. If we see 140 before 108, my hat will be off to you. I’m putting money on the bearish case, soon. But, I’ll tighten my stops thanks to you!


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