Donald,
Ed Downs of SignalWatch.com has been doing a great job of chronicling the diamond pattern (http://www.signalwatch.com -- the bottom of the three charts on the right side of the page). I also read (can't remember where) that it's forming on the S&P too.
I don't have my copy of Edwards & Magee with me, but they make a couple of points about the pattern (quite strongly, I should add): it is a rare pattern but easy to spot, occurring in the weekly chart almost always at major tops or at tops preceding significant intermediate reactions; and the minimum (their emphasis) move predicted by the pattern is the distance from the top point (11,700) to the bottom point (9,700) below the breakout point, which I interpret to mean 10,400 (the breakout point) minus 2,000 equals 8,400; Ed Downs thinks you should measure it from the bottom of the pattern, which would give us about 7,700.
That's all I know. Edwards and Magee dedicate only a few pages to it, but they are quite firm in what the pattern means. Only in very rare cases is it a consolidation before a move up, and as we have broken through the lower boundary of the pattern, resolving it to the upside does not seem to be an option.
Paul |
