Last week the S&P 500 broke a key technical level. The entire trading world was talking about it and watching it. It has become the most famous trend line in the history of trend lines.
Technical analysis can be a useful tool, to guess where participants will look to unload losers or close winners. Sometimes the pattern becomes so obvious that it becomes a self-fulfilling prophecy.
It remains to be seen whether or not this trend will be confirmed. Sometimes this can lead to a mob mentality. I am extra cautious when everyone has the same opinion. When a pattern becomes this obvious, the market can take advantage of the ‘prophecy’ to lull retail traders into complacency and hope of a breakout.
$MSFT earnings come out and suddenly everyone is caught off guard like it’s out of nowhere. Looking at the same trend line on a different index you might have had a different conclusion.
The lesson, which is a life lesson and a trading lesson… be careful when you have a belief that defines your expectations. You will look for confirming evidence to support your belief.
Always assume you could be wrong. Be open to narratives that could challenge your expectations.