Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Climax of the Stock Market Broadening Top

Stock-Markets / Stock Markets 2010 Mar 16, 2010 - 12:28 PM GMT

By: Anthony_Cherniawski

Stock-Markets

Best Financial Markets Analysis ArticleThe picture above is a basic outline of the broadening top formation as described by John J. Murphy in his book, “Technical Analysis of the Futures Markets,”(pp. 150-152) published in 1986. 


He summarizes, “First of all, the broadening formation is a relatively rare pattern.  When it does appear, however, it’s usually at an important market top.  It looks like an expanding triangle with three successively higher peaks and two declining troughs.  The wider price swings are accompanied by gradually increased trading activity.  The resolution of the formation is signaled by the violation of the second low (point 4) after the completion of the third peak (point 5).”

While John compares the broadening formation as a triangle in reverse, I would like to compare it as the inverse of an ending diagonal or wedge formation.  While some broadening formations have a horizontal axis, many have a diagonal axis and fall in the same category.  It is the opposite of a diagonal pattern where volume diminishes as the pattern develops.  In this case, the volume tends to expand with each price swing, giving the appearance of market support for each breakout.  Traders get the surprise of their lives when the market promptly reverses in the other direction.  John Murphy says, “This situation represents a market that is out of control and unusually emotional.”

Let’s look at the major indices to see how this pattern has developed.

What may come as a surprise to many, there are two probable broadening formations in the Industrials.  I call them the parent fractal and the child fractal, an extension of the parent.  The numbers are meant to correspond with the pivots points on the broadening formation, but could also be interpreted as Elliott Wave labels as well.  If the Elliot Wave rules apply, we are given a natural limit on point (wave) 5 of 10,881.  Currently, point 5 is lower than point 3 and may not be required to exceed it.   This would be considered a truncation and may increase the probability for a bearish outcome. 

 The SPX shows a similar profile as the INDU.  Although point 5 has not reached the upper trendline, it has exceeded point 3, which implies that completion is very near.  Applying the Elliott Wave Principles, the natural top for point (wave) 5 may not exceed 1165. 

The NDX reminds me of a reverse-engineered ending diagonal.  Both the parent and child fractals have a diagonal tilt that adds credence that the end may be near.  Again, the Elliott Wave Principles suggest that point 5 may not exceed 1957.00.  If this is so, then a reversal may be imminent. 

Finally, the Russell 2000, the index which is most loved by speculators, is also nearing completion.  It has a natural target of 705.00, based on guidelines for zig-zag waves.  There is no assurance that this target will be met. 

As a further note, the Russell 2000 has rallied 98% from its 2009 low.  The NDX rallied 85.7% from its low last March.  The S&P 500 rallied 73.5% and the Industrials rallied 65.8%.  This indicates that the participation by all investors has been robust.  Since the broadening formation indicates an unusual amount of public participation, it could now be said that the average investor is “all in.” 

Many analysts will agree with John Murphy’s comment that, “This situation represents a market that is out of control and unusually emotional.”  In fact, I have been told, “There is something wrong with this market” a number of times by other traders.  The final climax of point 5 may mark the end of this phase of “irrational exuberance” by many investors. 

Traders alert:  The Practical Investor is currently offering the daily Inner Circle Newsletter to new subscribers.  Contact us at tpi@thepracticalinvestor.com for a free sample newsletter and subscription information.

Our Investment Advisor Registration is on the Web

We are in the process of updating our website at www.thepracticalinvestor.com to have more information on our services. Log on and click on Advisor Registration to get more details.

If you are a client or wish to become one, please make an appointment to discuss our investment strategies by calling Connie or Tony at (517) 699-1554, ext 10 or 11. Or e-mail us at tpi@thepracticalinvestor.com .

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

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Charlie
16 Mar 10, 15:32
Broadening top keeps moving?
Good-bye Santa Rally?

Dec 19, 2009

http://www.marketoracle.co.uk/Article15927.html


Why does your broadenign top keep changing when it is proven to be wrong ?


The Chairman
18 Mar 10, 04:15
Past broadening tops?

Tony,

Can you show any examples on historical charts where this type of broadening top pattern has happened before, followed by a continuation of the bear market as you are now predicting?

Thank you.

The Chairman


Guru
22 Mar 10, 13:38
Broading Top ???

It's the "same chart" all the time for the top.

Why do you keep changing the trendline to fit your forecast


Amen
20 Apr 10, 17:18
Beraish ?

This guy is always wrong !


Post Comment

Only logged in users are allowed to post comments. Register/ Log in