Dow Completes Weekly Measured Move

Jul 25, 2008: 11:46 AM CST

The Dow Jones Industrial Index completed a large-scale “measured move” pattern last week, which culminated with a large momentum bounce (confirmed counter-trend rally) which led us to this week’s action, which found resistance and is retracing part of the counterswing move.  If all that sounds confusing, let’s look at the charts.

Dow Jones Weekly Chart:

A “Measured Move” can also be classified as an “ABC” Swing, (A occurred in January, 2008; B occurred in March; and C has just occurred, completing the pattern), or it could also be known as an “A to B equals C to D” style relationship.

Under the “A to B; C to D” relationship, A would be drawn at the start of the blue line (October high) and then B would be the end of the first blue line (Jan 2008); C would be the start of the second blue line and D would be the projected (now completed) “measured move” of the relationship.

Whatever you call it (I like to call it the “Lightning Bolt” Pattern), the index just provided a very clear pattern of the relationship, and we can use it for further study should the pattern repeat in the future, or on a different stock or time frame.

I do enjoy trading and projecting Measured Move patterns, as they provide clear targets and risk-management points once you recognize odds favor pattern completion, or once you begin to recognize the potential pattern in development.

Market Technicians can get very deep into this particular relationship, utilizing specific algorithms to determine exact and projected relationships between the legs of the moves, using Fibonacci and (sometimes) Elliott Wave parameters to overlay the price and provide exact targeting.  For the ‘at home’ trader, it’s important to understand the basic structure and how you should position yourself or manage your trades when a ‘measured move’ pattern forms.

It goes without saying that you can’t recognize or act on this pattern until the final leg sets up: what we’re looking for is a trading idea that sets up with the “C” leg, or the resumption of trend (or, more specifically, the “C to D” relationship).

Without getting much deeper in explaining this pattern, use this example as a classic textbook case of the pattern and try to work in your own ideas about trading structure and price projections should you recognize this pattern in development in the near future – it often occurs more than you would expect.

2 Comments

2 Responses to “Dow Completes Weekly Measured Move”

  1. DHalsey Says:

    Hey Corey,
    Great post. Isn’t technical analysis amazing? Your call worked out perfectly. BTW thanks for adding my blog to your blogroll. I really appreciate it.
    Have a great weekend.
    DHalsey

  2. Anonymous Says:

    Today I am more interested in the “B to C equals D to E” relationship – With E being the end of the current rally, if it hasn’t already ended