Monday, December 29, 2008


As the oscillators where pointing to in the short term, the DOW is now down about 65 points. I do see a couple of POTENTIAL patterns that I want to point out…

Below is a 60 minute chart of the DOW; note the new purple triangle I just drew in (hey, we’ve been in this range for so long purple is all that’s left!). The DOW just broke the lower trendline for now. This is what sideways does, however, it creates new triangles as it moves sideways as we’ve done several times now. Is this the for real breakdown?

Let’s look at the 20 minute chart… here I have drawn what is a potential H&S neckline with the double green lines. It is not verified until that neckline is broken.

And below is a 20 minute SPX chart showing the same break of the purple triangle. The H&S neckline in this case is the dark blue line, that same old bottom of the big triangle line that’s been acting like a magnet for the past 3 months. Look where we are, right on it! And also note the descending twin red lines that are the inverted H&S neckline that we still can’t get away from!

If we do break down and confirm the H&S pattern, it’s good for about 60 S&P points. Will it happen? It sure seems that we’re stuck in a low volume range to me. The VIX has jumped 4% higher, that MAY bolster the downward case, but the bottom line for me is that this area of the chart is dangerous and difficult to make money from. I need to see a clean breakdown from those necklines to get short and to get long I would need to hear some type of news to stimulate a move that has the potential to break 920 on the SPX up side. Guess what, it won’t be another rate cut that does it!

DOW is now off 80 points… on a clean break beneath 8,400, I like the odds of going down to the 7,900 area, about 500 points lower.