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#1
23rd March 2008, 02:25 PM
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Does event driven price movement submit to trend rules and indicators?
Many times price movement is event driven. In such a case, variation in price is a response to the degree of perceived threat or opportunity. Crisis arising out of Sub-prime Lending is the case in point. In the Indian market, on January 22, 2008, there was massive fall in the price indices of the two national stock exchanges. The vertical bar of the drop-down can serve as a good staff, if a flag forms (In fact, a flag is in the process of formation!). In as much as the sudden drop was result of the panic generated by the negative perception and the prices moved up the next day quite substantially, can the dropping-bar be treated as the flag-staff, in case the formation is completed? If so, would the closing price of the bar, be a valid point to measure the drop from the top of the flag? If there is a break out upwards, can one expect prices to move to a height corresponding to the low staff base, in the back-drop of continued sub-prime crisis in US, negative local conditions, such as, low liquidity, higher rates of interest, inflation, impending general election and many other accompanying conditions that are unhelpful for market growth? In such a condition, would it be valid to go by technical analysis as compared to fundamental considerations?
Further, if the lower end of the flag touches or crosses the low of the staff, would such a formation still be treated as Flag? 
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