When technical analysis no longer works…

Here is an interesting snapshot for SDS for the past 12 months of the year:


The closing price for SDS is way above the 200-day MA, hence indicating a strong buy signal. 

By adding in the volume factor, more interesting things happened, the interest of SDS is at its peak at the end of November, when it was at all time high of 133.20, which is completely understandable. However, the volume then went down and up and down, which matches the price pattern for SDS since the all time low of the stock market. As SDS is reaching a trading volume that is comparable to its lowest price recently (at the beginning of November), one could not stop wondering, is it going to be another opportunity for SDS to go up again?

The graph is equally interesting for momentum traders, with the momentum graph displayed at the bottom of the 3 graphs. The momentum is clearly indicating an upward trend, hence it should be a good pick for the momentum traders as well.

However, the reality seems to tell us that we are having a bull market, hence SDS, as a “short” stock, is coming down.

The fundamentals in the market is still weak, needless to say, but there seems to be an upbeat mood ever since Obama won the election. Besides the fact that the Christmas-effect is kicking in, we have a market that is eagerly waiting for the outcome of the bailout package for the Big Three automakers, which could come at any time. All these could possibly contribute to the unusual upward trend in the overall market and therefore creating a false picture that the market is recovering.

Just thought this is an interesting example for those who are studying for the Investment course in UW, as the final exam is coming this Friday.