Wednesday, August 15, 2007

The Rails and Emerging Markets.

On July 19th I said the following about the rails;

"I came across a couple of nice looking patterns you may find of interest. Union Pacific, (UNP top chart) one of the current market darlings had a beautiful shooting star yesterday on very heavy volume. I move below yesterdays low of $125.59 would be the signal to go short. Norfolk Southern (NSC 2nd chart from top) and Burlington Northern (BNI last chart) both show the same pattern with corresponding heavy volume. A move below their lows of yesterday would be the trigger. For Norfolk its $57.78 and for Burlington it's $91.87. Could be a top in the rails of some substance only time will tell. For those interested Norfolk's action today is indicating a bearish engulfing bar which is very negative."

The chart above shows the shooting star on the daily chart. Notice the massive volume. What I want you to pay attention to is what happened following the formation of the star. We jobbed around a little before commencing a not so insignificant, even to a Warren Buffett, decline.

Now I bring your attention to the Emerging Markets I-shares (EEM) which I hi lighted on Aug 6th. The focus of which was a shooting star on the monthly chart. This is a bearish formation happening on a very rare time frame(monthly). As if this is not enough, the weekly chart on EEM also shows a very negative bearish engulfing candle or bar July 27th. If the past is a prelude to the future, which it usually is contrary to what many will tell you, what has occurred following this formation on the rails does not bode well for EEM. Now some may say it fits the rails and tracking Asia and they may be but we need to concern ourselves with the charts. I know Asia and the emerging economies of the east are the place to be going forward but that does not rectify a very bearish monthly formation. Forewarned is forearmed.

Do more of what you are doing right and less of what you are doing wrong, hence we add to our winners and sell our losers. Good trading to you all.

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