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Strategies & Market Trends : Humble1 and Swing Trading Friends

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To: humble1 who wrote (16541)

11/9/2014 9:44:20 AM

From: bearshark

Read Replies (4) of 41036

Here is another example from January 2000 of a broadening top formation. Look at the INDU chart from early December 2009 to mid January 2000. The result is clear. The RSI was in a similar position at the top.

stockcharts.com

A similar--but not exact formation--can be seen in the SPX for the same time period. In 2000, the INDU led the markets into the bear market and other averages followed shortly thereafter. That may explain why the SPX didn't form point #5.

stockcharts.com

I don't want to sound as if this is the end of the bull market because I don't know if it is. However, it is time to be cautious and not to be blindsided. As one can see in the INDU from January 2000, these reversal patterns can bludgeon the markets.

At p. 173, Edwards and Magee speak about this formation:

"This particular form appeared at the 1929 Tops of many of the active and popular stocks of that day . . ."

"The Orthodox Broadening Top has three peaks at successively higher levels and, between them, two Bottoms with the second Bottom lower than the first. The assumption has been that it is completed and in effect as an important Reversal indication just as soon as the reaction from its third peak carries below the level of the second Bottom."

The second bottom in the INDU is at about 15885 and I am not willing to wait until we reach that point to become cautious. I'm cautious now! If anyone doesn't believe that humans act within limits, then there is nothing to be concerned about.

Below is my spreadsheet chart that shows bull and bear markets in margin debt. It is based upon my belief that humans act within limits. It shows the beginning month/year and ending month/year and the growth or decline in margin debt as a % during its bull and bear markets. As one would expect, the bull and bear markets in margin debt closely correspond to those in market indexes. As you can see, the present bull market is within its range of a top and has been for several months. I have excluded the numbers for 9/78 to 9/82 because this was Edson Gould's transition period into the secular bull market of 9/82 through 3/00. If you exclude the secular bull market numbers of 916.90 and 303.38, you can get a better idea where this bull market sits within cyclical bull markets. Of course, if this is a secular bull market, we haven't seen anything yet.

Start

End

Bull

Bear

2/09

Present

167.67

7/07

2/09

-54.56

9/02

7/07