The Sky Is Falling

Before we look at some weekend charts I just want to second Sir Fullgoldcrown’s Friday night post at the forum. We created Rambus Chartology so we could have a community of like-minded investors who want to learn as well as share what they have experienced in their own investment world. We are all equals when it comes to the investment world which can humble even the most experienced traders on the planet. That’s the nature of the game we’re playing. Sharing ideas in which everyone can benefit from is the corner stone of Rambus Chartology. I know we have a lot of lurkers at the forum and if you have any good ideas you would like to share with the rest of the members please feel free to post what you have without fear of ridicule or embarrassment. As Sir Fully likes to say, “It’s all for one and one for all.”

Last week was a week that doesn’t come around very often in the stock markets. After chopping sideways for all of 2015 it now looks like we’re finally getting an intermediate term move down as some important support zones have given way. Until this past week it was still uncertain whether this horizontal trading range was going to be a consolidation pattern or a reversal pattern. Thursday and Friday’s price action confirms for me that we have a 5 point bearish flat bottom expanding triangle reversal pattern in play now. The bottom blue rail of the expanding flat bottom triangle, which gave way on Thursday at 17,100, finally broke critical support. That bottom trendline will now become resistance on any backtest. The next big question will be whether we’ll see a backtest to 17,100 before we go lower? I’ll try to answer that question a little later.

Next let’s look at a four year weekly chart for the INDU which shows the smaller red 5 point bearish expanding flat bottom triangle as part of a much bigger blue expanding rising wedge. As you can see the DOW closed right on the bottom rail last Friday which is showing us it’s hot. A break of the bottom blue rail of the expanding rising wedge at 16,460 will give us an even bigger topping pattern.

This next very long term weekly chart for the INDU goes all the way back to the 2007 H&S top which reversed the bull market at that time. That strong decline ended with an inverse H&S bottom which was the exact same height as the 2007 H&S top and led to our 6 1/2 year bull market rally. On this weekly chart I’m showing the bottom rail of the expanding rising wedge as a black dashed support and resistance line. That line is now the most important line on that chart. It will be interesting to see how the price action interacts with it.

This last chart for the INDU is a 30 year monthly chart which shows how the blue expanding rising wedge fits into the big picture at the top of the chart. Keep in mind this pattern won’t be complete until the bottom rail is broken to the downside. That will be the confirmation we’ll need to see that says this stage of the bull market is now over.

The daily chart for the SPX shows it has broken down from a blue 5 point bearish falling flag at the end of its almost nine month parallel 5 point bearish rising flag formation. We can now call it a bearish rising flag formation because the price action has broken below the bottom rail confirming the reversal pattern for us. The failure of the price action to reach the top rail, which would have been reversal point #6, now tells us the bulls were weak. It’s hindsight now but it still helps confirm the bearish price action from last week. Clues, it’s all about getting clues.

If this decline takes off to the downside the monthly chart for the SPX shows the previous highs made back in 2000 and 2007 should offer some strong support at 1550 or so.