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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

The Not So Orthodox Broadening Stock Market Top

Stock-Markets / Technical Analysis Dec 15, 2009 - 04:37 PM GMT

By: Anthony_Cherniawski

Stock-Markets

Best Financial Markets Analysis ArticleA few of you have been asking me whether I am still following the broadening top formation.  The answer is, Yes, Yes, Yes and Yes.

Being a fractal with self-similarity, the broadening top has replicated itself at several degrees of trend, much like the fern leaf to the left.  This is giving it the power to extend beyond its expected boundary by repeating a self-similar pattern over and over again.    


Normally, blue point 5 would be where green point (i) is.  However, with a lot of water and fertilizer (liquidity and bulls--t), the fractal began to grow another (green shoots) extension.  The second extension wasn’t as strong as the first, but added another four months to its timeline. 

The points of a broadening top formation are not normally the same as Elliott Waves, but the green extension points could just as easily be an Elliott Wave count.  This is clearly not the traditional wave pattern.  Note that the bottom blue trendline not only gives us the boundary of the original broadening formation, but it also highlights the diminishing trading volume over time.  It is also the ultimate target for the initial decline from the top of its formation.

Note that there is little consistency between the green (positive) trading volume versus the red (negative) trading volume on a day-to-day basis. 

Finally, the third (red) broadening formation appears. 

The red broadening top formation has more of the look of the Orthodox Broadening Top seen in Edwards and Magee’s Technical Analysis of Stock Trends, pp 151-154.   Not to be outdone, however, a final broadening formation (black) inserts itself.  The entire process has left a series of false signals for discouraged traders. 

Volume, which tends to diminish in a bearish wedge, is erratic in a broadening top.  There are multiple false breakouts in both directions, also giving false directional signals.  This is why so many professional traders and money managers are throwing in the towel.  Their accounts have been chewed up by the whipsaw movements within the pattern.

Finally, the final point 5 has reversed into what may be best described as an impulsive wave.  It has been followed by a corrective pattern that could not regain the prior highs.  This may be the final gasp of a very difficult trading pattern. 

If the identification of this pattern is correct, the selling floodgates will be opened once the SPX goes below 1085.  Investors interested in a unique methodology that charts the cyclical patterns of the market can inquire about my daily newsletter subscription by emailing at tonyc@thepracticalinvestor.com

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Anthony M. Cherniawski,
President and CIO
http://www.thepracticalinvestor.com

As a State Registered Investment Advisor, The Practical Investor (TPI) manages private client investment portfolios using a proprietary investment strategy created by Chief Investment Officer Tony Cherniawski. Throughout 2000-01, when many investors felt the pain of double digit market losses, TPI successfully navigated the choppy investment waters, creating a profit for our private investment clients. With a focus on preserving assets and capitalizing on opportunities, TPI clients benefited greatly from the TPI strategies, allowing them to stay on track with their life goals

Disclaimer: The content in this article is written for educational and informational purposes only.  There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information in this article is the opinion of Anthony M. Cherniawski and subject to change without notice.

Anthony M. Cherniawski Archive

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