It’s hard for me to think about the 10%+ move up in the equity indices over the last three months as a rally just as it will be hard for me to consider a potential 10%+ move down in the weeks ahead as a correction considering that each is probably just a product of this year’s directionless sideways trend.
It may seem premature to think about the possibility of another whipsaw back down into the very clear sideways trend showing in the chart of the Dow Jones Industrial Average above, but it is worth entertaining at least with the Dow’s three-month Rising Wedge as drawn weeks ago showing vulnerability to the downside having broken below the body of the Rising Wedge as marked and into what sort of presents as an Ascending Trend Channel. “Sort of” considering that the Dow has made neither a touch to the top trendline or the bottom trendline in a month, and thus the bearish convergence of slowing buying momentum shown by the Rising Wedge, but it is the coiling sideways action in the chart of the Dow Transports below that provides an even better reason to think that the Dow is about to reverse back down.
As can be seen, the Dow Transports never had the chance to trade into a Rising Wedge this year but only a series of Bear Wedges that have put in lower apexes or highs than those that had been recorded previously with the truly sideways convergence of this multi-month Symmetrical Triangle showing just how confused and uncertain investors are about the fundamentals.
Currently investors are directing this uncertainty down toward the bottom trendline of the Symmetrical Triangle showing in the Dow Transports considering that a small Bear Pennant more than confirmed on the close yesterday for a target of 4958 and this is fitting considering that it is very close to the 4931 target of the recent Bear Wedge highlighted.
What may make either of these patterns significant if successful is the fact the targets are below the bottom trendline of the Symmetrical Triangle and a potential scenario that would serve as an early sign of downside confirmation of this massive pattern and set-up the distinct possibility of a lower low.
Before looking at the numbers on that side, though, let’s look at the bullish side that says the Dow Transports will finally give up its resistance to and non-confirmation of the three-month move up in the equity indices and this begins with confirmation at 5392 for a target of 5988 and would be a record high.
Can the Dow Transports put in a record high on weak fundamentals and the possibility of central bank help? It has been immune to the talking points part of the coordinated policy actions between the Fed and the ECB, and thus its lower highs and a lack of a real Rising Wedge and this would seem to suggest that any dramatic move up by the Dow Transports will be in reflection of dramatic central bank action that must come within days to weeks base on the tightening coil of the Symmetrical Triangle.
One reason to think this sort of action in the form of Federal Reserve bond buying will not come any time too soon beyond the fact that it would exceed the present circumstances with the Dow up 10% on the year with no signs of deflation anywhere is shown by a two-year daily chart of the Dow Transports.
Here we do see a Rising Wedge born of Operation Twist and to a much lesser degree last year’s LTRO with the Dow Transports siding with the CRB Index in being particular about the source of central bank liquidity and one that is trying hard to take this index down to its target of 3951.
The fact that this pattern of slowing buying momentum has been trying to confirm on the coiling uncertainty of a Symmetrical Triangle suggests that the two patterns are likely to support each other to produce a more than 20% decline and something that would be, officially, a correction and a “win” for the bears out there.
And this may be one good reason to think that the recent range "rally" is about to get razed.
sure looks like we're going higher at the moment....a lot of the stuff I'm hearing and seeing are saying louder than ever to get ready for a crash but just ain't seeing it yet.
Based on the fact these voices and sometimes mine have been talking downside and it never happens I am still thinking up until it's obviously over.....just sick of fighting the fed and the fantasyland buyers for the last few years...it doesn't really matter why it goes up we just have to go with it and when/if it drops wait until it's obvious.
Speaking of that, if it really does crash I don't expect to get a retrace on a larger frame...I think it will drop like a rock if it happens so have to look to just jump on somewhere....
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This is a finer point but one worth noting considering that on first glance this small cap index almost appears to be taking on a near-term bullish look relative to the increasingly bearish-looking Dow Jones Industrial Average and S&P.
The reversal in question is of the Russell 2000’s one-month uptrend as shown by today’s downside breach of the third Bear Fan Line stemming from this month’s low. It provides an early and strong signal of a bearish sideways swipe to the downside for all of the equity indices and something that may prove to be of help to all of the near-term tactical traders out there.
When viewed in the context of a six-month chart, the message becomes more serious with the Russell 2000’s drop below its second one-month Bear Fan Line having started a confirmation of its most recent Rising Wedge while it is a very nice Double Top that supports a whipsaw not just to the bottom of this year’s sideways trend but right through it and toward the bottom of last year’s sideways trend.
Naturally all such bearishness is supported by the Russell 2000’s more than year-long trend of lower lows while the Double Top confirms at 765 for a target of 703 and a level that would reconfirm the Operation Twist Rising Wedge for a target of 602.
Unless the Russell 2000 can break the lower lows shown above, its Rising Wedges and various topping patterns should be taken quite seriously with a possible move toward 602 quite attractive relative to the alternatives offered by this index’s three-year Head and Shoulders pattern that has been detailed in many other notes.
It is for this reason that it is probably worth paying attention to the fact that the Russell 2000 is reversing down.
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This is the daily Ichimoku....for those that didn't jump on at 808 a while back a retrace to the TS or preferably the KS is a spot to look to look for an entry long.
That being said it looks like todays bar will be a bullish engulfing bar so with that being the case I'm thinking we might just break the high and then come back and take it out and maybe work our way down to 825ish anyway.
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