Dow Likely Entering Bear Market: Broadening Top; Bear Flag
Updated
Ominous portents. Broadening top in September led to the microcrash in October and US Equities have been struggling since.
November usually one of the best months for stocks, has only been a down month in 3 years of past 20; those were in Bear Markets...
Some very fine textbook chart formations appearing over past few months. The Zig-Zag Correction has led to what appears to be the end of the Great Bull.
Fed will hike again next month and if they hike twice more we will get a recession starting in 2019. Earnings have already passed their halcyon days, look at Apple and NVidia, IBM and many other issues already entering bear markets. The power to drive this market to new heights has leaked out of the balloon, I'm afraid.
Spent a weekend reading Murphy's Technical Analysis of Financial Markets, Chapter 6: Continuation Patterns is a lovely read, quoted for your reading pleasure:
"The Broadening Formation is an unusual variation of the triangle and is relatively rare.... looks like an expanding triangle... also called a 'Megaphone Top.' In other triangular patterns, the volume tends to diminish as the swings grow narrower; in the broadening formation, volume tends to expand along with wider price swings. This situation represents a market that is out of control and unusually emotional. Because this pattern also represents an unusual amount of public participation, it most often occurs at major market tops. The expanding pattern, therefore, is usually a bearish formation. It generally appears near the end of a major bull market."
-Murphy, 1999 Revised Ed., pages 140-141.
"The flag and pennant represent brief pauses in a dynamic market move. One requirement... is they be preceded by a sharp, almost straight-line move. They represent pauses in which that market 'catches its breath' before running off in the same direction. Flags and pennants are among the most reliable continuation patterns and only rarely produce a trend reversal. ...Flags and pennants are said to 'fly at half-mast' from a 'flagpole,' as they appear at the midpoint of a major move. Pennants and flags on downtrends are completed very quickly, often in only 1-2 weeks, after which the breaking of the lower trendline in the pennant signals the resumption of the downtrend. The break down will take place on heavy volume, and the magnitude of the move is estimated by measuring the vertical distance of the preceding move from the breakout point of the pennant [i.e., measure top half of pole to estimate the bottom half]. Flags are small parallelograms that slope against the prevailing trend. Pennants resemble small horizontal symmetrical triangles."
-Murphy, 1999 Revised Ed., pages 141-145.
Well, this flag started flying on 14 Nov, I reckon it might snap off after the holiday week, maybe sooner, who knows? Expect it to fly a bit higher, to form a right shoulder which might be expected to occur around 25600 on Dow. We saw 25500 very briefly Friday on Trumptweet, another such tweet could top off the flag. Good luck!
As always this is an educational post for your amusement and does not constitute investment advice; trade at your own risk!
November usually one of the best months for stocks, has only been a down month in 3 years of past 20; those were in Bear Markets...
Some very fine textbook chart formations appearing over past few months. The Zig-Zag Correction has led to what appears to be the end of the Great Bull.
Fed will hike again next month and if they hike twice more we will get a recession starting in 2019. Earnings have already passed their halcyon days, look at Apple and NVidia, IBM and many other issues already entering bear markets. The power to drive this market to new heights has leaked out of the balloon, I'm afraid.
Spent a weekend reading Murphy's Technical Analysis of Financial Markets, Chapter 6: Continuation Patterns is a lovely read, quoted for your reading pleasure:
"The Broadening Formation is an unusual variation of the triangle and is relatively rare.... looks like an expanding triangle... also called a 'Megaphone Top.' In other triangular patterns, the volume tends to diminish as the swings grow narrower; in the broadening formation, volume tends to expand along with wider price swings. This situation represents a market that is out of control and unusually emotional. Because this pattern also represents an unusual amount of public participation, it most often occurs at major market tops. The expanding pattern, therefore, is usually a bearish formation. It generally appears near the end of a major bull market."
-Murphy, 1999 Revised Ed., pages 140-141.
"The flag and pennant represent brief pauses in a dynamic market move. One requirement... is they be preceded by a sharp, almost straight-line move. They represent pauses in which that market 'catches its breath' before running off in the same direction. Flags and pennants are among the most reliable continuation patterns and only rarely produce a trend reversal. ...Flags and pennants are said to 'fly at half-mast' from a 'flagpole,' as they appear at the midpoint of a major move. Pennants and flags on downtrends are completed very quickly, often in only 1-2 weeks, after which the breaking of the lower trendline in the pennant signals the resumption of the downtrend. The break down will take place on heavy volume, and the magnitude of the move is estimated by measuring the vertical distance of the preceding move from the breakout point of the pennant [i.e., measure top half of pole to estimate the bottom half]. Flags are small parallelograms that slope against the prevailing trend. Pennants resemble small horizontal symmetrical triangles."
-Murphy, 1999 Revised Ed., pages 141-145.
Well, this flag started flying on 14 Nov, I reckon it might snap off after the holiday week, maybe sooner, who knows? Expect it to fly a bit higher, to form a right shoulder which might be expected to occur around 25600 on Dow. We saw 25500 very briefly Friday on Trumptweet, another such tweet could top off the flag. Good luck!
As always this is an educational post for your amusement and does not constitute investment advice; trade at your own risk!
Trade active
I hate being right about bad news... GLTATrade active
Yeah this is going much faster than I expected. Look for retest of the October lows, and when we see them, a further push far below those lows for a deeper 'double tap' bottom formation... when capitulation finally rolls over, Dow could break off >1k in a single session. GLTA!Trade active
Futures point to a lift in pre-holiday trading, likely a pause before a final sell wave. Still haven't seen capitulation, although Tues selling was fierce, 8:1 sell:buy order ratio on NYSE. A retracement today could provoke a last panic to retest lows.Trade active
It's moving fast now. Could see capitulation Mon/Tues- might break off big. IF it snaps off then look for a sharp bounce off 235 area, likely long entry point- could get a hammer Doji there. Behaves like bottom-seeking, might bounce off 240, idk! GLTANote
Revisiting this post the basic premise remains valid; in the retrospectometer the rough projections panned out not too far from actual; the monster rally that followed defied reason and my expectations. We are at critical juncture, either will rally again after a retracement, or sink to a double bottom. Unpredictable. Fed holding rates steady,and a sealed deal with China could spark another upleg.
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.