Dow and S&P Structure Completing Broadening Formations

Jul 23, 2009: 5:35 PM CST

I first mentioned the possibility that the Dow Jones index was forming a “Broadening Formation” on July 15th and that pattern now appears to be the dominant structure with a price target that has almost completed.  Please take a look at the original post and then let’s see the updated structure as of today’s powerful move up.

If we connect the doji highs in June (which are ascending) and begin a trendine from the May highs, we see the following upper trendline which has a price projection target around 9,200 to 9,350, which seems to be a highly likely target towards which price is heading.

With the break above the June highs today, and above key resistance, it shows the resilience of the buyers (bulls) to defy any sort of chart resistance or internal non-confirmations to achieve new highs – it also speaks to the sellers who are having to cover positions by purchasing back borrowed shares.

It’s possible that the shorts covering stops will help give the fuel needed to complete this formation – which has bearish overtones if it plays out as expected.

A broadening formation is a sign that a market is swinging wildly in both directions as neither side can find value and a struggle for dominance is playing out – that’s exactly the case we’re seeing now.

Let’s take a quick look at the S&P 500 which is showing the same structure:

S&P 500:

The explanation is the same for the S&P 500, though it would appear the target would be about the 1,000 area for the pattern to complete.

Despite the new price highs, volume barely made a new high in the S&P 5oo for July and the Dow Jones failed to make a new July high in volume.  Summertime trading sessions are known for reduced volume so take this into account – though it still is a slight non-confirmation of higher prices.

For more information on these patterns, and a description of tactics on trading today’s session (including recognizing the day’s structure and how to use the TICK to time entries into a developing trend day), please subscribe to our new “Idealized Trades” intraday reports at our new Premium Section of Afraid to Trade.  There are sample daily reports to see if this service might be productive for you.

Corey Rosenbloom, CMT

17 Comments

17 Responses to “Dow and S&P Structure Completing Broadening Formations”

  1. pipercolt Says:

    This megaphone pattern is a good patten for the bears, howver check out the inverse head and shoulders on a weekly and if it plays out this market could have a huge rally.

  2. Tronacate Says:

    Baltic Dry is dropping….where's the beef? And with Goldman frontrunning pretty soon all the players will leave the table…..and they can diddle themselves.

  3. janet Says:

    What does broadening formation mean???

  4. BJ Says:

    Megaphone pattern is very volatile pattern and hence very dificult to trade. The pattern is still evolving and a confirmation is still awaited.That will come only below 8200. We have Dow theory buy signal. Anyone trying to short are going to get caught with your pants down.

  5. Anonymous Says:

    Very good observation! I don't think many people have noticed that possibility. Probably because everyone is bearish, and that bearish bias means that they are biased in their market analysis. They are looking for things that will confirm their bias as correct. So most are specifically looking for reasons that the market will go down, meaning they are likely to overlook bullish patterns. Ha!

  6. j0sh1ngU Says:

    i dont think we reach the top of that area. At least with not a significant move down/pullback but to early to tell which one.

  7. JB Says:

    Ironic that a person named BJ is talking about getting caught with his pants down…

  8. JB Says:

    On the SPX, it could be drawn as an ascending triangle with horizontal support around 880. It's more bullish than bearish.

  9. What Are the Markets Doing? | Indo Forex Says:

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  10. rod_1 Says:

    Corey, I checked the “Elliot Wave Counts: Competing Interpretations” post. I have been wondering if the most bearish case could still play out even if there is a final move down from C which doesn't break the March lows: I believe Elliot Wave Principle calls this a “truncated” fifth wave in the case it subdivides into 5 sub-waves. Sorry to comment here, the original thread is a bit old now.

  11. C.C. Rider Says:

    Good catch on potential expanding triangle. This chart may be a little busy, but the Neg. DI on the ADX is acting similarly. Interesting that these resolve downward.

    http://www.eyield.co.uk/myarea/introduction/pri

    http://content.screencast.com/users/texana44/fo

  12. A Quick Comparison of 3x Funds BGZ and BGU | Afraid to Trade.com Blog Says:

    […] see the same “Broadening Formation” I discussed in a previous post on the Dow Jones.  The pattern is completing its upside target as shown […]

  13. A Quick Comparison of 3x Funds BGZ and BGU | Penny Stock Trading System Blog Says:

    […] see the same “Broadening Formation” I discussed in a previous post on the Dow Jones.  The pattern is completing its upside target as shown […]

  14. Peter Says:

    You know, I actually drew the broadening formation before I saw your article. But, I ignored my lines, considering the sentiment in the market. Now, that I see it here, I can revisit it. In fact, this morning, I was watching the dollar bounce off double bottom support. I think UUP could go to 25 soon. Fed is talking about sooner raise in rates etc. This could very well, kill commodities such as copper. Many commodities are making double top or neg divergences. FCX is backing off. I can't explain why and what will give. But, copper is showing huge neg div since April on PPO. http://stockcharts.com/charts/gallery.html?$COPPER. We'll see how it develops. Good article.

  15. What Are the Markets Doing? | Tu Mundo Says:

    […] I think we’re in a leg up. Corey thinks we’re in a broadening formation. […]

  16. florida_formation Says:

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  17. florida_formation Says:

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