Dow Jones with potential Bull Flag or Broadening Formation
Back from late November into mid-December, the DOW was moving within the confines of a falling price channel which turned out to be a Bull Flag when it broke out on some Taper BS. Now we're looking at the same type of formation, but it's slightly different this time as we also have the potential of a Broadening Formation.
This particular Broadening Formation does not fit the technical definition as in the true Broadening Formation you would have a series of higher highs and then some lower lows. These highs and lows would create a pattern that looks like a megaphone. You can see the megaphone pattern, marked with the falling solid green line, but this is a falling megaphone. A true Broadening Formation should look like the reverse of a pennant so this does not meet that definition. Still, it's there and you have to wonder it it's legitimate. To prove to be legitimate, the DOW would have to be repelled by the upper falling line and then drop below the recent lows in the 16240 area.
Here's the problem I see with the current situation: We've been stuck in a sideways price range for almost a month and while we don't seem to be able to break to new highs, we haven't made any significant new lows. We're basically just churning, which is something you see when the markets are under distribution. Perhaps more important is that the DOW pushed higher on heavy volume this past Friday but was not able to hold its highs, closing 40pts off those highs. While AXP, V, and GS rallied nicely on Friday, 21 DOW components closed in the red. So the DOW financials saved the day and as long as these don't falter on Tuesday and as long as other DOW components join in the fun, then we should break out of the Bull Flag and we're off to the races again. However, if the DOW does not rally on Tuesday because of the large shadow cast by INTC's announcement of no growth for 2014, then you would have to be on the look out for a test of the 16240 area and perhaps a failure there.
Also, there is a very clear double top formation in the $SPX and there is trouble in tech paradise and big tech has been the leader of this rally. If the $COMPQ does not shrug off INTC's warning and continue to rally and if $SPX should confirm the double top with a close below 1815, then you should expect lower lows ahead.
Of course, I could be totally wrong and the DOW and other majors just take off on Tuesday and never look back. I would imagine that market direction will become much clearer in the week ahead.
All IMHO and subject to change without notice. GL in the week ahead.
This particular Broadening Formation does not fit the technical definition as in the true Broadening Formation you would have a series of higher highs and then some lower lows. These highs and lows would create a pattern that looks like a megaphone. You can see the megaphone pattern, marked with the falling solid green line, but this is a falling megaphone. A true Broadening Formation should look like the reverse of a pennant so this does not meet that definition. Still, it's there and you have to wonder it it's legitimate. To prove to be legitimate, the DOW would have to be repelled by the upper falling line and then drop below the recent lows in the 16240 area.
Here's the problem I see with the current situation: We've been stuck in a sideways price range for almost a month and while we don't seem to be able to break to new highs, we haven't made any significant new lows. We're basically just churning, which is something you see when the markets are under distribution. Perhaps more important is that the DOW pushed higher on heavy volume this past Friday but was not able to hold its highs, closing 40pts off those highs. While AXP, V, and GS rallied nicely on Friday, 21 DOW components closed in the red. So the DOW financials saved the day and as long as these don't falter on Tuesday and as long as other DOW components join in the fun, then we should break out of the Bull Flag and we're off to the races again. However, if the DOW does not rally on Tuesday because of the large shadow cast by INTC's announcement of no growth for 2014, then you would have to be on the look out for a test of the 16240 area and perhaps a failure there.
Also, there is a very clear double top formation in the $SPX and there is trouble in tech paradise and big tech has been the leader of this rally. If the $COMPQ does not shrug off INTC's warning and continue to rally and if $SPX should confirm the double top with a close below 1815, then you should expect lower lows ahead.
Of course, I could be totally wrong and the DOW and other majors just take off on Tuesday and never look back. I would imagine that market direction will become much clearer in the week ahead.
All IMHO and subject to change without notice. GL in the week ahead.