David,
Re "Doug mentioned the Dow IHS pattern today. I was calling for a C&H to form a short while back..."
Keep in mind that with any pattern, there is a critical qualifying event that justifies direction one way or the other. One part of my seminar covers that an IHS and a C w/ H are both subcategories of the ascending triangle. As such, the event in question would be a breakout from the triangle one way or the other. The fact that these patterns are being set up does not in and of itself call for bullish optimism. Some time back, as the Dow was correcting to 7400, I posted that I recognized the high probability that an ascending triangle would develop. The return to 9300+ was the first step in the process.
The cup with handle you mentioned is exhibited as the head and developing right shoulder seen in the IHS context that began on 6/16. The low that day was what may now be construed as the left shoulder at 8524. The low on 12/14 at 8610 offers a reasonable amount of symmetry to the pattern but there is, as of yet, no technical verification that 8610 is the bottom of the right shoulder. Regardless of where the right shoulder bottoms out, the neckline of the IHS (and therefore the breakout line of the cup with handle) is already defined.
Now here's the point...An IHS, a cup with handle AND an ascending triangle ALL begin as a possible double top. Once the double top is in place, a return for a 3rd time to that top with progressively higher lows, sets up the dominant pattern which is the ascending triangle. (there are also instances in which the handle of a c w/ h develops an IHS which is very cool but I parenthetically digress here).
As far as strategy is concerned here, the prudent course would be to begin going net long (NOT jump all over long) in anticipation of a breakout to the upside while keeping in mind that nothing is confirmed yet. A break to the downside would occur as the apex of the ascending triangle is approached so there is little risk of significant loss since a breakdown would occur at a respectable price level. It is important to keep in mind that the bottom of the right shoulder (or the ascending trend line of the IHS) has not been solidly established, on a technical basis, as being anchored to Monday's low of 8610. But if a bullish breakout were to occur, the initial target on the Dow would be 11,400 so that prospect does command some attention insofar as developing a position.
Personally, I feel that the uptrend line that is attempting to be established here as the ascending component of the probable ascending triangle (defined as the line from the bottom of the head on 10/8/98 to what seems to be a nicely symmetrical right shoulder that was possibly established on 12/14 in relation to the left shoulder put in on 6/16/98) is unreasonably steep. I very much expect a readjustment of this trend line before the next return to Dow 9300.
As far as all this verbage goes, the bottom line for myself is that I will be going 100% S&P in my 401K by the end of the year. I don't want to miss a break to the upside and if there's a break to the downside it will occur higher than here so there is no sense in not attempting to participate.
Phew!!!
Doug R |
