Attractive Long-Term Technical Entry

Tuesday, April 21, 2009

The massive correction in the equity markets starting in October of 2007 and running into 2009 has offered an excellent buying opportunity from a technical perspective. The 20-year, logarithmic chart below shows a large, extended run in stocks from 1990 up to the 2000 top as overblown enthusiasm over technology companies peaked. The market endured a 3-year correction before finding a bottom in 2003. The ensuing rally brought stocks back to the all-time highs but the real estate market bubble popped and credit markets froze. The S&P took a rapid dive back to the 2003 lows as banks suffered massive credit losses.

The current double bottom offers a calculated entry for long-term money interested in owning equities. From a technical perspective the current decade has been a consolidation of massive move in equities throughout the 1990s setting up a bull flag pattern. The bull flag pattern resolves with a break to the upside and further gains. The aggressive buyer will pick up shares at the bottom of the bull flag expecting the breakout to come over time. The current pattern offers such a buying opportunity.


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