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Retail Index gives "bear signal reversed."

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Today's trade at $825 was enough to give the Retail Index (RLX.X) the "bearish signal reversed" supply/demand pattern. This is perhaps the most "powerful" of the bullish chart pattern found in Professor Earl Davis' study of point and figure chart patterns performed at Purdue University. This chart pattern was profitable for a bullish trader 92% of the time, for an average gain of 23% in a 2.5 month time frame.

Retail Index Chart - $5 box

The S&P retail Index (RLX.X) is trading higher by 2% today and this group of stocks has reversed rather sharply in the past three sessions. It was that "sharp reversal" which is a characteristic of the bearish signal reversal that makes this pattern so compelling to bullish traders. What often happens is that the series of lower highs and lower lows "ropes" complacent bears into thinking the pattern will eventually pay high returns to the downside as the lows keep getting lower along with the lows. However, once the reversal is underway and the move higher begins, those bears that have been complacent and not using their stops get trapped. Only when they realize their mistake, does the explosion to the upside take place. Traders can also see the potential of a spread-triple top unfolding on a trade at $840.

Today's trade at $825, also puts the Retail index back on a "buy signal" and creates a vertical bullish count price column that indicates a preliminary bullish price objective of $955 longer- term. That number could grow, but things are looking bullish in the sector.

Jeff Bailey
Senior Market Technician
Option Investor

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