Early Pre-Holiday Equity Comment - 5/23/2008

Yesterday we talked about the trading pattern we are currently in and what the outlook from this trading pattern is forecasting.

You will recall, I posted two charts that showed a very similar movement both in price and time.
Below is an enlargement of those two charts and thus we can use the pattern as a forecasting tool.

The boxes I have placed around the price action are the two very similar patterns I am talking about and based upon this pattern we should be looking for lower prices again on Tuesday, but a potential reversal in those lower prices to close out the day. This reversal however could come as late as Wednesday as the short term price pattern for Tuesday based upon the market action of Friday, calls for yet another day of lower prices with very little hope for recovery. In all probability, this call for the reversal in prices on Wednesday fits the pattern more logically and with Tuesday being the day after a holiday it adds a higher chance of lower prices as well.

You can also see by the chart below, that once prices do recover and begin to rally, that there will be a substantial move higher retracing 50% to 62% of the current decline. This will be the calm before the storm however as the decline should begin to gather steam after a counter trend rally. I am getting a bit ahead of myself here though, as we still need to see that pattern continue as is laid out on the chart.