Galirayo,
The ACT on the DJIA was created in 1994.
An ACT (ACcelerated Trendline) is part of a more comprehensive chart pattern I discovered years ago that I call the ACT/IL/RR dynamic.
Basically an ACT, on a stock, takes 3 to 5 days to develop.
It looks like a beveled edge on a chart that already has a more modest uptrend prior to the bevel. Besides the very short time frame it takes to establish it, an ACT must also be an ascending triangle. Not necessarily an exact ascending triangle but there shouldn't be any real significant advance in the daily highs during its formation.
The ACT on the DJIA is the first, and only, one I have seen on a major index. It took 11 trading days to form prior to Thanksgiving in 1994.
On a fundamental level it corresponds with NAFTA being passed early in 1994. The reason (imo) it waited until Nov to form had to do with the resolution of the Mexican peso crisis that also (coincidentally) occurred that year. It seems that the peso had to be re-engineered to conform with the ultimate goals of NAFTA and GATT so the crisis was brought on to justify the re-engineering. Once that was accomplished in November, the DJIA ACT formed.
The ACT led to the next phase of the comprehensive pattern...the IL. Not all ACTs lead to an IL and not all ILs lead to trouble but when an IL (a sometime companion line of an ACT) is formed and when price goes over that IL, eventually (usually relatively quickly when seen in individual stocks) a very, very bearish period follows. During this bearish period price will fall from above the IL to the ACT then bounce an equal percentage of the fall.
As an example, a stock that falls from above the IL to the ACT from 15 to 7.50 will bounce 50% from 7.50 to 11.25. The bounce is the RR part of the ACT/IL/RR dynamic
This bounce happens nearly 90% of the time. The drastic fall from above the IL happens 100% of the time so any chart that has an IL and price goes over the IL is a classic example of "irrational exuberance".
If the fall to the ACT takes 10 days, the bounce usually takes 3 to 5 days.
Once the bounce is over, the chart just sorta dies a slow agonizing death and is a mess for many months or even years afterward.
In the case of the DJIA, THE most symbolic stock index, and the fact that its ACT represented NAFTA and GATT, its ACT/IL/RR dynamic played out very idiosyncratically. There were about a 1/2 dozen bounces off the ACT once price went above, then fell back below the IL. None of the bounces took price back over the IL. The first bounce was of exactly the same percent move as that of that initial drop. I think the 2nd and 3rd bounces conformed in that way to their drops to the ACT. The rest got messier in that regard and this year the drop/bounce frequency was high. 3 bounces in 5 months or so when the first 3 were each over a year apart. That increased frequency was a big warning.
Now that it appears the final bounce has taken place (and each time the DJIA approached the ACT I tried to warn that failure to bounce would mean an extremely dire period would follow) an extremely dire period is here.
Failure, so far, to even attempt a bounce to retest the fall below the ACT is very troublesome.
The PTB (powers that be) do not seem at all able to inject any orderliness into the DJIA's chart. That inability could very soon be evident to the majority of market participants so get really close to the exit.
Doug R |
