The final move into top on the Dow now looks to be underway. Let's investigate using the daily, weekly and monthly charts.
Dow Daily Chart
Many analysts seem to calling the final bull market top to be in but it is my considered opinion that they have jumped the gun. My current outlook calls for one last high to put in the belated top to end this most impressive bull market.
There appears to be a clear 5 point broadening top playing out which is denoted by the numbers 1,2,3,4 and 5. The recent all time high looks to be point 3 with one final top to be point 5.
Also, a common topping pattern is three consecutive marginally higher highs - a "three strikes and you're out" top. There is usually a significant decline after the third top. So far we have two marginally higher highs - the first on the 4th September and the second on the 19th September. Now we await the third and final top.
Price swinging wildly between the upper and lower Bollinger Bands also provide more evidence that the trend is changing. This final move up looks set to give the upper band one last kiss goodbye.
The recent low at point 4 shows a false break of the 76.4% Fibonacci Fan angle. Price dropped below this angle on an intraday basis before reversing back up and closing above the angle. Then price bullishly followed through to the upside on Friday.
The Parabolic Stop and Reverse (PSAR) indicator shows the dots to the upside being busted by this follow through move. So this indicator is back to a bullish bias. The stage is now set for the final move into bull market high. But where is the final high likely to be?
I'm looking for the final top to be right around the 50% Fibonacci angle perhaps just above 17400. The 19th September top was around 190 points higher than the 4th September top and I expect this third and final top to be much more marginal than that.
The Relative Strength Indicator (RSI) and Stochastic indicator both look set to show a triple bearish divergence on this coming top. That could be expected to lead to a significant price decline.
Once this last top is in the question will be how deep the decline goes. If price declines to below the August 2014 level at 16333, denoted by the horizontal line, then we will likely have the first swing low in a bear market on our hands.
Previously, I thought price may find support before the August 2014 low which would lead to one final high in early 2015. While this scenario is certainly a possibility, I prefer that of price making a lower low.
Then a bear market rally could be expected which we can look at further in the future using Fibonacci retracement levels to determine likely points for the rally to end.
One level to keep in mind is the yearly open price. Price opened 2014 at 16572. I'd like to see price close the year in the red even if only marginally. So perhaps the 2014 candle will show a marginally negative doji pattern - a common pattern for top.
Dow Weekly Chart
The RSI and Moving Average Convergence Divergence (MACD) indicator both look set to show a fourth bearish divergence on this top. This bearish indication is a leading factor in me believing the next move down will be deep and break the previous swing low.
The Bollinger Bands show price appearing to make a false break of the middle band. Perhaps one last move up to the upper band before it's game over.
The move down this week pulled up just short of PSAR support. The dots stood at 16666 this week with the price low at 16674. It doesn't get much closer than that!
I have drawn voodoo style the candles for the next two weeks as I expect to see them. Next week shows a strong move up into new highs while the following week, beginning on the 13th October, shows price trading marginally higher at the start of the week before turning down and making new weekly lows - a bearish outside reversal candle. This is highly subjective of course but nevertheless this is my current price roadmap.
If price pans out as suggested, then there should be some downside follow through in the weeks following.
Dow Monthly Chart
I have drawn trend lines along consecutive lows. This shows the trend lines becoming steeper and steeper. It is normal for bull markets to show four and sometimes five steeper trend lines. Price looks to have finally broken through the support of the fourth trend line.
We can see after breaking below the fourth trend line, price found support at the third trend line and subsequently rallied back to the fourth trend line. Price looks to have been rejected here and that generally means a move down to bust the support of the third trend line is on the cards.
Price looks to be threatening to break through this third trend line. Perhaps after one last high, price will do exactly that.
The PSAR indicator still shows a bullish bias with the dots below price but that could change pretty quickly.
The RSI is showing a bearish divergence. Previously, I was looking at this as a fourth bearish divergence. Technically it is but the two recent highs are very close to each other so they could be grouped together to form a triple bearish divergence. This is being a little nitpicky.
The MACD indicator shows a recent bearish crossover so conditions are certainly ripe for this bull market to terminate.
That lays out how I favour price performing into the end of 2014. I expect to put my money where my mouth is by looking to enter into short positions on the expected third and final high.
