The DOW was in an Ending Diagonal pattern which we have followed for many months before the recent downside. The chart below is from our members page and illustrates the completed pattern on Sept 23rd indicating a stock market top. On Friday Sept 19th, it appeared that the market top was likely in place, but we confirmed the reversal on Monday Sept 22nd. The forecast for the reversal was also supported by many other indices that we follow. There was the negative divergence with the Russell 2000 that we have been following and the recent development with the "death cross" of the moving averages on this index also supports the forecast. There are many other charts that have completed Ending Diagonal patterns over the past few months. These charts include the CAC 40, AORD, FTSE, HSI, and wave (2) for the HGX.
We do have a few lower trendlines on the indices that have not yet been broken, but when these lines are broken they will add further support to the forecast. The first lower trendline is illustrated on the the DOW chart below, so we can monitor the action at this red line for further confirmation.
DOW - Completed Ending Diagonal Pattern
We can see that the current action is approaching this lower trendline on the updated DOW chart below. We could see a small wave (2) bounce at this trendline before it breaks lower.
DOW - Ending Diagonal Pattern -action close to lower trendline
We have also discussed bubbles and parabolic advances in past newsletters and the rally from the the 2009 low did go parabolic. Parabolic advances can't be sustained and always end poorly, with the price usually falling to or below the starting point of the parabolic move. What goes straight up, always comes straight down faster and usually further.
We can monitor these lower trendlines on the indices for further confirmation on the reversal.
These charts are only a guide so that you can follow the action and monitor the expected outcome. The action could play out exactly as illustrated or it may need minor adjustments as we follow it through.
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