DaddySawbucks

Dow Likely Entering Bear Market: Broadening Top; Bear Flag

DJCFD:DJI   Dow Jones Industrial Average Index
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 . 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... GLTA
Trade 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! GLTA
Comment: 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.
Although looking at the first 15 minutes of trading today,11/21
they may not GET the rally they are expecting.

A down move today , if it were to come,
would really catch them off guard before the Turkey feast.

THE_UNWIND
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@The_Unwind, It's making another bear flag in 15m chart... breaking again soon...
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Mr.Sawbucks,

You and I are on the same page here..Retrace today, and maybe Friday 11/23 .

End of the month next week may see a sharp move down to end the month.

THE_UNWIND
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You guys have to zoom out a bit to see it clearly, but we are currently in a head and shoulders formation.

We have already formed the left shoulder, the head and are on the lower neck line breaking down before swing back up to right shoulder and then a classic drop afterwards.

I have drawn lines of support from historical lows and highs.

Basically, we are super effed, in short.

I fully expect a lower right shoulder than left due to many factors including rate hikes and especially the trade war with China and the new tarrifs officially start at the beginning of the new year. They are all significant factors for a much higher impact.

Our stock market has not been so hyperinflated since the 01 bubble that we never really recovered from since we started to print money instead of letting the market correct itself properly.

No corrections for almost ten years now... The right shoulder is as high as the DOW will get for some significant years to come.

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Fib zones
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The_Unwind Zulu_Kilo
@Zulu_Kilo,

Very well done !

THE_UNWIND
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Very well done. Mr Sawbucks.
For the sake of the truth, continue to dig deeper..
until you see things as clearly as possible.

THE_UNWIND
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@The_Unwind, Thanks for comment and support. ZK may be on to something with the triple top idea, who knows, may just break down and capitulate. We will soon see!
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Nice, although having done Rob Smith's quant edge course recently I can state that broadening formations are everywhere- an outside bar is a broadening formation by definition!
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@chrisatom, Thanks for comment and like- yes, any pattern can appear anywhere and they are not absolutes but only suggestive indicators. The pattern does strongly suggst continuation, however. GL!

O BTW, Rob is brilliant and I spent hours looking at his Youtubes but quite honestly I see inside bars in every chart that do not lead to reversals, so those are also suggestive indicators.
I think Rob is just a genius who 'sees' more than mere mortals like myself. Cheerio!
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chrisatom DaddySawbucks
@DaddySawbucks, inside bar just means consolidation so don't trade it- must be followed by hammer or shooter to be a reversal signal, or alternatively a bar where range is broken then reclaimed (so the price is broadening and therefore should go in the way of the reversal to take out the other side). Idea is to combine with timeframe continuity- e.g if Dow goes green tomorrow we have daily. weekly and monthly all green so get an entry signal on the hourly to join the trend.
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