Price Charts Paint Bearish Picture For Equities

This story features WESTPAC BANKING CORPORATION. For more info SHARE ANALYSIS: WBC

By Rudi Filapek-Vandyck

Other experts and market commentators have been pointing out there's an apparent divergence between equities and bond markets, while emphasising the bond market is not always a 100% accurate indicator.

This certainly is true, admits the TechWizard, but history shows the bond market has a better track record than equities and thus investors should at least pay attention to scenarios that at present are being suggested by persistent low yields on global bond markets.

It is essentially a bearish sign, he explains, which would fit in well with what appears to be a picture of rapidly deteriorating economic data, in the US in particular.

The bond market's signal also fits in with the appearance of bearish technical signals for equities that are showing up on price charts, reports the Wizard. As everyone can see by looking at daily price charts for equities in Australia and in the US, major indices seem to be heading for a head-and-shoulders pattern.

If confirmed, says the Wizard, such a technical pattern is a very bearish signal.

To make matters worse, his weekly price charts equally show a head-and-shoulders pattern. This would be an even stronger signal, explains the Wizard (the longer time it takes to carve out the pattern, the more powerful and significant it is).

Further adding to the Wizard's bearish view is the fact that the second “shoulder” on price charts tends to be an unusually weak one. A pattern he sees repeated on price charts for (most) banks, such as Westpac ((WBC)). Not a good sign, he believes.

All in all, the Wizard sees enough reasons to now have turned very bearish on prospects for equity markets. Investors should think a dozen times before ignoring the market's message, he warns.

The TechWizard is the pseudonym of Scott Morrison, whose experience in financial markets exceeds twenty years. Morrison operates his own website nowadays at www.techwizard.com.au The views expressed are the TechWizard's, not FNArena's (see our disclaimer).

Click to view our Glossary of Financial Terms