The Dow this morning formed a near idea bear flag pattern that revealed itself to savvy traders.

The only thing keeping this pattern from being ideal was that the market was unable to retrace back to the falling 20 period moving average, which was a further sign of market weakness developing.

Ideal entry (short) would have been when price violated the rising lower trendline around 10:30 at the $124.30 price level with a stop above $124.50 with a target being the “measured move” of the prior flagpole (projected downwards) which equaled roughly $123.70.

A positive momentum divergence has developed (blue line at bottom) which will likely limit further significant downside potential today. A trading range or ‘probing phase’ could develop with back-and fill conditions ahead in the short term.

Further solidifying this possibility is the fact that the daily DIA sits directly on the daily 50 period moving average, which could provide temporary support in the meantime as well.

When you find patterns in the market, it can be a good idea to print off the chart and document the pattern so that you can recognize it easier next time and act quicker with entries, targets, and stops.