TREND CHANNEL BOUNDARIES

Drawing trend channel lines is a useful exercise for the times that prices get deflected at one of the channel boundaries. Our most recent example is the recent deflection of the Nasdaq 100 (NDX) Index from the upper end of the broad bullish uptrend channel that NDX has been in from early-June lows.

By itself, hitting this upper channel line has been common in recent weeks. Each time NDX has ran up to the line AND was registering an overbought RSI extreme, there's been at least a minor pullback. Eventually, there's one not so minor which may be underway now.

In prior recent instances of run ups to the upper channel line resistance, these instances were not followed by a downside price gap, which is the case just recently per chart highlights below. After prolonged advances, the first time there's an overnight gap decline, it's often the early stages of more decline to come.

1. Deflection from upper trendline shows 'resistance' [ R ]

2. overbought RSI extreme says high risk of correction

3. downside price 'gap' pattern then bearish on the chart

4. Prices Fall

There's the old trading adage to "buy the rumor sell the fact". This (by me) can be stretched to 'buy the expected bump in earnings from product release and sell the actual event' an example that seems to be provided by Apple Computer (AAPL) and it latest big (iPhone5) product release. See my chart notations.

Another thing to talk about here is the uptrend channel pattern is an exact duplication of the same pattern as seen with the Nas 100 (NDX) Index. AAPL keeps bumping up against its line of rising resistance, without a breakout above it and eventually the hot money crowd wants to cash in and prices fall.

S&P 'FLAG' PATTERN

We saw this pattern develop in early-September as described in full on the daily S&P 500 (SPX) chart below.

Once the narrow-range sideways consolidation occurs after an initial strong spurt higher (making the 'flagpole') and is then followed by another strong move above the top of an imagined 'flag', you can reasonably bet that the second upswing will at least be equal to the strength of the first. For example, if there's a 30 point advance, small consolidation only, then another price surge, look for another 30 points tacked on to the top of the 'flag'; i.e., the 'breakout point' in a next leg higher.

PARABOLIC ARCS

Google (GOOG) stock has traced a classic chart pattern whereby a stock or index is in such a strong move that its rise traces out a parabolic arc as seen below. Look out when prices start to go 'vertical' at that point on the arc.

I've rarely seen where a sharp downside reversal didn't follow after this rising arc type pattern forms and after prices hit the circle where, to stay within it (the arc of prices), prices would have to literally go straight up. They may for a while but nothing is one way only even on the Street of Dreams.


GOOD TRADING SUCCESS!