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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: pater tenebrarum who wrote (50041)	5/9/2000 10:27:00 PM
From: drsvelte	Read Replies (1) \| Respond to of 99985

More on INDU diamonds... from Ed Downs who picked this up some time ago.. trading-ideas.com from the Worden Bros. today..... "A Diamond in the Rough Dear Don: I've been reading Edwards & Magee's book on the subject of top formations. One of the formations is the diamond. This usually happens at the end of a bull run. However, there are cases where the diamond formation failed and broke to the upside. Looking at The DOW on a weekly chart, I see a diamond forming. TSV is lower than the lows of 1998 and Money Stream as you pointed out looks quite sick (not that it couldn't come back of course). My take on this according to the book and according to the widest area of the formation is that the DOW could fall to around 7200 if it broke down. Is this possible? And, if it breaks out to the upside, could it go to around 13,750 ? Judging TSV and Money Stream, I'd have to be willing to bet on the downside. Thanks for the service and any correction you deem necessary in my view of this! -LZ DW and PW: I've been a subscriber for quite a few years and truly love your program. Nightly commentary has helped me find a few "unpolished gems" that I would have missed with my own formulas and criteria. I'll be short, sweet, and to the point. I'm very big on pattern recognition, using patterns and volume to locate stock picks. Keep it simple, stupid...My favorite motto. I'm a bit surprised throughout the last several weeks that you guys, or some of your followers have not mentioned an extremely obvious pattern that is close to completion. The ominous "diamond pattern". It can be found on a weekly chart of the DJ-30. Referring back to my Edwards and Magee, the pattern is quite bearish. Combined with current market conditions, I'm almost convinced the market could be due for a more serious setback than we've seen so far. Obviously the pattern could be resolved to the upside, but if you do your homework, especially considering what I've read in Edwards and Magee...I'm feeling a bit over-bearing. Keep up the great work. EKS It's nice to know somebody around here reads his Edwards and Magee, the important parts of which were written by the late Richard W. Schabacker. Now that I've complimented you both, let me remind you not to believe everything you read. I don't think Schabacker had much to back up his opinion on ?broadening tops? and ?diamond? formations, which happen to be one and the same thing. It's a matter of one formation changing into another. On today's paperclip chart accompanying the DJ-30 chart, I showed the developing diamond formation with trendlines. A diamond formation looks like this: <>. In actual practice, the shape can be quite irregular. The main thing is that the left side looks like a megaphone, and the right part looks like a megaphone in a mirror. The left side is characterized by higher highs and lower lows, a so-called broadening formation. It is an abnormal way for trends to develop and its fairly uncommon. The right side narrows, with lower highs and lower lows. It is triangular in shape and is called a pennant (that is, by Mr. Schabacker). By itself it is a very common formation. Glue it to the uncommon ?broadening top? and it too becomes uncommon. Schabacker says ?diamonds? tend to be resolved on the downside. Maybe. That's not important in this case and I don't have space to get into it in great detail. The dangerous conclusion (that I consider nonsensical) is that the distance after the breakout (whether up or down) is somehow related to the lateral width of the ?diamond.? This leads to outrageous conclusions like the one promulgated by LZ above ? that being that the Dow projects down to 7200 (or, as Schabacker would have put it, 7200 minimum.) And the 13,750 on the upside is just as absurd. There are far better ways to project moves, though no projection is trustworthy. You have to be able to recognize whether a move is ending when you get there. That's the main thing. But we have continually set up various support levels below the market and they provide logical guidelines. This diamond thing is metaphysical. Rather than getting involved in the big diamond, I would suggest you take the moves in bite size. In the second and third quarter of last year a toppy looking formation formed. It was a first cousin to a head&shoulders top, except that the right shoulder was marginally higher than the head. But the volume was correct, being successively lower at each peak. It was resolved on the downside, but it didn't go very far. That's not unusual. There's no reliable way to project how far it will go. You can cite areas where it will probably find support, but you don't know that it will ever get that low. In the last quarter of last year, we had a very interesting move, if you don't confuse the issue by getting muddled in a ?broadening top.? Take the move alone, and what you see is what is sometimes called a false rally or a false new high. That rally failure had a lot of ominous overtones. It took out the October bottom and from that point on we were in a downtrend. And we still are and will be until it is reversed. That leg down ended in March. It might have turned out to be the bottom, but so far we don't know. We are waiting for a test of the March low. There is nothing in this that tells us how far down the Dow might go before the bull market resumes. We have to feel our way. But what we can say is this. If the March low is broken decisively, there is strong support at about 9200, which coincides with the 1998 high. That level would provide a thorough but not damaging cleansing, and would be a credible place to start an important new bull move. One other thing worth mentioning. For many decades, the Dow and the S&P500 moved in lockstep. In recent years the high-cap tech stocks have added a lot of strength to the S&P500. It is the more representative market average. It has no ?diamonds? ? neither cut nor in the rough. We don't think the Dow will stray completely away from its old buddy, S&P500."

To: pater tenebrarum who wrote (50041)	5/9/2000 10:27:00 PM
From: drsvelte	Respond to of 99985

More on INDU diamonds... from Ed Downs who picked this up some time ago.. trading-ideas.com from the Worden Bros. today..... "A Diamond in the Rough Dear Don: I've been reading Edwards & Magee's book on the subject of top formations. One of the formations is the diamond. This usually happens at the end of a bull run. However, there are cases where the diamond formation failed and broke to the upside. Looking at The DOW on a weekly chart, I see a diamond forming. TSV is lower than the lows of 1998 and Money Stream as you pointed out looks quite sick (not that it couldn't come back of course). My take on this according to the book and according to the widest area of the formation is that the DOW could fall to around 7200 if it broke down. Is this possible? And, if it breaks out to the upside, could it go to around 13,750 ? Judging TSV and Money Stream, I'd have to be willing to bet on the downside. Thanks for the service and any correction you deem necessary in my view of this! -LZ DW and PW: I've been a subscriber for quite a few years and truly love your program. Nightly commentary has helped me find a few "unpolished gems" that I would have missed with my own formulas and criteria. I'll be short, sweet, and to the point. I'm very big on pattern recognition, using patterns and volume to locate stock picks. Keep it simple, stupid...My favorite motto. I'm a bit surprised throughout the last several weeks that you guys, or some of your followers have not mentioned an extremely obvious pattern that is close to completion. The ominous "diamond pattern". It can be found on a weekly chart of the DJ-30. Referring back to my Edwards and Magee, the pattern is quite bearish. Combined with current market conditions, I'm almost convinced the market could be due for a more serious setback than we've seen so far. Obviously the pattern could be resolved to the upside, but if you do your homework, especially considering what I've read in Edwards and Magee...I'm feeling a bit over-bearing. Keep up the great work. EKS It's nice to know somebody around here reads his Edwards and Magee, the important parts of which were written by the late Richard W. Schabacker. Now that I've complimented you both, let me remind you not to believe everything you read. I don't think Schabacker had much to back up his opinion on ?broadening tops? and ?diamond? formations, which happen to be one and the same thing. It's a matter of one formation changing into another. On today's paperclip chart accompanying the DJ-30 chart, I showed the developing diamond formation with trendlines. A diamond formation looks like this: <>. In actual practice, the shape can be quite irregular. The main thing is that the left side looks like a megaphone, and the right part looks like a megaphone in a mirror. The left side is characterized by higher highs and lower lows, a so-called broadening formation. It is an abnormal way for trends to develop and its fairly uncommon. The right side narrows, with lower highs and lower lows. It is triangular in shape and is called a pennant (that is, by Mr. Schabacker). By itself it is a very common formation. Glue it to the uncommon ?broadening top? and it too becomes uncommon. Schabacker says ?diamonds? tend to be resolved on the downside. Maybe. That's not important in this case and I don't have space to get into it in great detail. The dangerous conclusion (that I consider nonsensical) is that the distance after the breakout (whether up or down) is somehow related to the lateral width of the ?diamond.? This leads to outrageous conclusions like the one promulgated by LZ above ? that being that the Dow projects down to 7200 (or, as Schabacker would have put it, 7200 minimum.) And the 13,750 on the upside is just as absurd. There are far better ways to project moves, though no projection is trustworthy. You have to be able to recognize whether a move is ending when you get there. That's the main thing. But we have continually set up various support levels below the market and they provide logical guidelines. This diamond thing is metaphysical. Rather than getting involved in the big diamond, I would suggest you take the moves in bite size. In the second and third quarter of last year a toppy looking formation formed. It was a first cousin to a head&shoulders top, except that the right shoulder was marginally higher than the head. But the volume was correct, being successively lower at each peak. It was resolved on the downside, but it didn't go very far. That's not unusual. There's no reliable way to project how far it will go. You can cite areas where it will probably find support, but you don't know that it will ever get that low. In the last quarter of last year, we had a very interesting move, if you don't confuse the issue by getting muddled in a ?broadening top.? Take the move alone, and what you see is what is sometimes called a false rally or a false new high. That rally failure had a lot of ominous overtones. It took out the October bottom and from that point on we were in a downtrend. And we still are and will be until it is reversed. That leg down ended in March. It might have turned out to be the bottom, but so far we don't know. We are waiting for a test of the March low. There is nothing in this that tells us how far down the Dow might go before the bull market resumes. We have to feel our way. But what we can say is this. If the March low is broken decisively, there is strong support at about 9200, which coincides with the 1998 high. That level would provide a thorough but not damaging cleansing, and would be a credible place to start an important new bull move. One other thing worth mentioning. For many decades, the Dow and the S&P500 moved in lockstep. In recent years the high-cap tech stocks have added a lot of strength to the S&P500. It is the more representative market average. It has no ?diamonds? ? neither cut nor in the rough. We don't think the Dow will stray completely away from its old buddy, S&P500."