Thursday, 30 April 2009

A rising wedge chart pattern and the folklore about "Sell in May and go away"

There is a rather interesting similarity emerging from a technical perspective on the chart for the S&P 500 now and the chart from almost exactly one year ago. It could add some credence to the old market adage of Sell in May and Go Away
The first chart below shows a rising wedge pattern that culminate in mid May 2008 with a blow off, as signalled by the shooting star pattern on May 19th, as marked on the chart. This preceded a severe downturn in the overall market which brought the S&P 500 down by approximately 15% over the following two months.

The daily chart of the S&P 500 below is where we stand at present with a simple projected version of the rising wedge pattern going into May. It is possible that we could get another blow off pattern at almost any time - even possibly today (April 30th) if the S&P 500 fails to hold above 875. Perhaps more tantalizing is the possibility that we extend further upwards towards the 935 area which was seen in January 2009, and which would take us probably into the mid-May time frame, and an almost identical chart configuration to that seen exactly one year ago.

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