Expanding pattern

October 2, 20138 Comments

expanding

 

I’d like to ask readers for some open discussion and comments on this week’s market chart. The long term chart for the S&P500 seems to have expanding upper and lower peaks & troughs. I’ve marked them on the chart. Expanding patterns are typically bearish. The implication of the pattern is that volatility is increasing  (the swings are getting wider).

I’m fairly agnostic about this chart’s interpretation. That’s because the weekly (mid-term view) chart, beyond the US government-inspired fear-trade that’s going on now, is looking bullish. On the other hand, Thomas Bulkowski, in his wonderful book “Encyclopedia of Chart Patterns”, notes that the pattern on average tends to predict a bearish market about 75% of the time.

I’d be interested in hearing your opinions on this chart – do you place any credence on a mega-long termed pattern like this, or is it not something you would consider to be of concern – i.e. “Damn the torpedoes – full speed ahead!” (Admiral David Glasgow Farragut 1801-1870)?

Comments are welcome.

Keith on BNN

Here’s the link to a Globe & Mail article with my top picks from the show: here.

8 Comments

  • Hi Keith,

    Great Show at BNN…

    I try to apply technical analysis before I buy ETFs for short to interemediate trades. Do you prefer to apply technical indicators on daily or weekly charts?. Daily charts have lots of noise which results in false signals but weekly charts are much slower to develop which results in delayed entries and reduced gains. I appreciate your opinion.

    BR/Mohamed

    Reply
    • Hi Mohamed
      I use the weekly charts, and sometimes even longer (monthly) to determine the trend and formation – then I use the daily chart to determine entry timing. The daily chart is where all of the momentum studies and comparative relative strength, etc comes in.
      The most important thing is to understand the 4 phases of a market– use the weekly chart to get a handle on which phase you are looking at. I discuss this in my book Sideways.

      Reply
  • Hi Keith…re your chart above, Pring in his book, “Technical Analysis Explained” defines it a an “Orthodox broadening top,” and says it is associated with market peaks rather than troughs. He goes on to say that the violent and emotional nature of both price and volume swings further compounds the confusion and increases the complexity. It is hard to imagine a chart going back to 1998 being emotionally driven, but based on your comment and Pring’s book, it doesn’t look good. And your earlier suggestion that the secular sideways trend may be breaking to the upside may be in jeopardy.

    I think, though, that I would pay much more attention to the monthly and weeklies in the last, say, five years for trend analysis rather than worry about a 15 year chart.

    Question: Do you prefer log or arithmetic scale for your charts?

    Now, I hope this posts as I have had some trouble getting comments on your site.

    Reply
    • Hi Fred— yes, we had somebody email me directly telling me that they couldn’t comment due to our new anti-spam software (the comment space was getting all kinds of wonderful invitations to buy cheap Viagra and lose belly fat without dieting!). Anyhow, we think we’ve fixed the problem….
      And yes, I use log charts.
      Some input from a CSTA conference I attended last week–my TA hero Ralph Acampora noted that markets may, after a strong winter, enter into a normal healthy selloff (bear market type, not just an interim correction) next year- based on a 5-year cycle. That makes sense to me–although Ralph was bullish going forward after any such a correction.
      I’m with you though–stay with the trend until it ends.

      Reply
  • SEEING SUCH A LONG TERM CHART WITH EXPANDING PEAK AND TROUGHS MAKES ME THINK ABOUT THE SO-CALLED “SUPER LONG CYCLE” DESCRIBED IN BOB PRECHTER’S BOOK OR HARRY S DENT PUBLICATIONS. DOOM AND GLOOM FOR THE FUTURE? LARRY BERMAN DOES NOT BELEIVE IN “SUPER LONG CYCLE” AS A CASE IN THE MAKING. DO YOU?

    Reply
    • I don’t necessarily buy into a super-cycle of any type- as I am not an Elliot Wave kinda guy.
      However, I do believe that we may be due for a normal bear market some time into next year (perhaps into next summer or fall – aka seasonal weaker period)–this expanding pattern may provide a hint to that.
      BTW–a normal bear, in this case, would only be a 20% or so correction.

      Reply

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