It is said that the market is a discounting mechanism, and that it discounts (in the present) roughly six months to one year out (in the future). As I'm looking at this chart, as in stands in THE PRESENT, I am listening to a discussion on CNBC about whether or not we WILL HAVE an economic recovery (in the future), and about whether or not we've "seen the worst," etc.
While we all still are waiting to find out those answers about "the future," look at what AKS (and many other stocks) already has done.
You can see why I don't have an opinion about anything, and why I don't try to predict anything. Not EVER would I have predicted that AKS Double Bottomed on March 2, at 5.39, and that it would rally 261% in just over three months' time, very near the 284% gain projected from the 20.75 Double Bottom target that is IN PLAY.
13.07 - Pivot of the "W"-Bottom, or Double Bottom (synonymous)
5.39 - The more conservative of the 5.20...5.39 November and March lows
13.07 - 5.39 = 7.68 points of upside on a takeout of 13.07
13.07 + 7.68 = Target: 20.75 IN PLAY
After the Double Bottom breakout, AKS formed a Symmetrical Triangle (in purple) and broke out of it, putting a targets of 15.86 (the high of the pattern) and 19.21 (height of the pattern, added to the breakout) IN PLAY.
Yesterday, Goldman came out with an "overweight" for US Steel (X), an equal weight for AK Steel (AKS), and an underweight for Nucor (NUE). Regardless, AKS was called higher at the open, "in sympathy" with the sector, and the 19.21 Symmetrical triangle target got MADE during the session.
This chart not only is a great illustration of how markets discount the future, it also gives testimony to why we don't want to BE "Permabulls" or "Permabears." Those postures on the market become "a state of being," which is a tremendous handicap. Permabulls had no chance of getting out of the market during the late 2007-2008 market Smackdown, and Permabears had no chance to benefit from some of the HUGE gains that we have witnessed since the November-March lows.
Throughout this rally, Permabears have argued things like "the economy still is horrible," "stocks have no business rallying this much," "technical analysis doesn't work in Bear markets" (LOL), "sentiment is at an extreme..."
Regarding that last one, I'll grant that sentiment is at an extreme, according to last Friday's Wall Street Sentiment Survey. I'm not sure whether or not this link will work. When you paste it into your browser, if you get a Pop-up that says "Tribal Fusion," just "X" that out and you should see a post that includes the Wall Street Sentiment Survey chart. I'll post the results in today's Comment Section, in case you have a problem accessing the chart.
http://www.traders-talk.com/mb2/index.php?showtopic=106902
3 comments:
Results of the Wall Street Sentiment Survey, June 8, 2009:
Bulls: 11%
Bears: 78%
The survey chart, posted at Traders-talk.com (thank you) shows that Bearish Sentiment has not been this extreme since early 2003, coming out of the 2000-2002 Bear Market.
Wish I had paid attention in March on AKS. While you identify the major pattern as a double bottom, there also appears to be a rounded bottom as well. I see it as part of the DB. Is there any added significance to this or can any additional insight be gathered from this add on?
Good Morning, Mark,
Yes, the move from the January "pivot" high of 13.07 does have the look of a rounded bottom, but it's still a Double Bottom with a Left Translation, meaning that the 13.07 pivot for the middle of the "W" shape is toward the left side of the pattern, rather than centered right in the middle of the "W."
One significance of that wider right side/rounded bottom of the "W," is that it took more time to form than the left side of the "W," which helped to establish a broader base for the pattern, in terms of time.
"The bigger the base...the better the breakout." The longer it takes to form, the better. The stock is being accumulated, and when it breaks out, everyone who bought the stock below the breakout is holding a winner, and they're like to hold, and even add to their positions. "Double down on winners, NOT on losers."
I still would measure the target the same way, though.
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