The Weekly Report for May 21st, 2007

Market Summary - Tri-Star Patter

In this week's report we've chosen to focus on the bearish candlestick patterns that have recently appeared on the charts of several of the major indexes. As you can see from the chart of the Dow, three doji candles have appeared, which is a technical signal of indecision that can often be used to mark the end of a prolonged trend. Three consecutive dojis, also known as a tri-star pattern, is very rare and it suggests that the uptrend is running out of steam. The major indexes may need some time to consolidate toward the support of several long-term moving averages before they can continue their respective run higher.

We still believe that this bull rally is unsustainable at the recent rate, but trading against the trend will be dangerous and timing a correction will be extremely difficult. It may still be a good time to take some money off the table and wait for a clearer picture of what will prevent this rally from correcting.