Island Reversals
They occur near end of a market move - it doesn't really matter whether it is up or down. All the price objectives are achieved, but prices leap forward at the last gasp. However the upward leap quickly fades and prices turn lower within a couple of days, or within a maximum of two weeks (normally when we have bought the shares thinking there is no risk).
Ideally there is one to three days between gap up and gap down. A gap up followed by a gap down does wonders for sentiment — bearish sentiment that is.
This leaves an island on the chart (see below). When prices close under the last gap it is usually certain that the exhaustion gap has made its appearance. Falling below a gap in an uptrend has very bearish implications.
We have just seen this happen to the Hang Seng.
This is a very rare, highly successful chart pattern for bears in bull markets and highly successful chart pattern for bulls in bear markets.
Ignore it at your peril.
Good trading
M005e & "M"
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