| Technical Analysis $SPX IWM IYR CELG NBIX |
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| Wednesday, March 15, 2006 |
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Corrections versus Pullbacks
What is the difference between a correction and a pullback? A pullback off the highs, is a pattern that consists of parallel lines. A general rule of thumb is that the lines always run parallel one another. An example of a pullback can be a bull flag, which is a typically a bullish indicator. Another example of a pullback can also consist of a slim Jim which is just a flat consolidation. Pullback time frames are usually short and fast in duration -- and they try to buck you off of your stock due to the speed of the correction. Sometimes they can last a just a day to 3 days or so. Pullbacks often occur in bullish markets and they do not break major uptrend lines. A good example of a pullback off the highs can be seen in the chart of Celgene (CELG). Another good example can be seen in the chart of the Russell 2000 ishares (IWM)- This is significant because the IWM has remained in its uptrend channel. The Real Estate Index (IYR) is also in a pullback. Do not Panic during pullbacks as long as the channels and uptrend lines hold. One last note on pullbacks is try not buy the high but and then buy dip to the uptrend line after confirmation that the uptrend line holds.
A correction in contrast to a pullback always consists of a triangle pattern. These triangle correction patterns generally take the shape of the following patterns: ascending triangles, symmetrical triangles, or falling wedges. In addition, a correction lasts longer than a pullback and the correction may be as deep as 10-15% and 20% in a bear market. A correction may last several weeks taking time to consolidate. However in bullish markets corrections can be over before you know it- especially in bullish waters. An example of a correction can be seen in the chart of CELG.
CELG
$SPX
IWM
IYR--NEW ALL TIME HIGHS
NBIX--NEW ALL TIME HIGHS
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