DOW and It's Text Book Breakdown

It's be a real pleasure watching this Head and Shoulders develop on the DOW chart and even more interesting to note the progression and key levels over the past few days that gave us a very good idea what was probable to happen next.

Click on the chart below and take a few minutes to look at the price action and closing levels of the past 5 days. Note where the trend levels were and the moving averages.

If you have the time, this is really good example to study because the story as it played out was pretty predictable
when broken down on the daily price action. No real surprises at all as this Head and Shoulders set up.

Here's a breakdown of what I noted over the past few weeks:

- July 26th: Head formed
- Aug 1st: Pierced the 100MA to the downside, first time since April (bearish)
- Aug 3rd: Closed BELOW the 100MA, first time since early April (bearish)
- Aug 10th: Upward Channel Trendline breached intraday, Neckline breached intraday, Closed BELOW 100MA (BEARISH!)

... The charts at this point are sending you some REALLY STRONG SIGNALS HERE

- Aug 13th: Doji (no strength), Close BELOW 100MA (can't get up), Close directly on the trendline (hanging by a thread)
- Aug 14th: Neckline convincingly broken, H&S confirmed (a signal to the world that a trend reversal is probable)
Closed between the 100MA and 200MA (with downward momentum the 200MA likely to act as a magnet)
- Aug 15th: Earlier in the session it moved up to kiss the backside of the neckline resistance and then fell hard all the way to the 200MA before getting a little bounce before the close.

All in all, from the time the head was formed until yesterday we had over a 500 point move.

Of course it's always easy in hindsight, but as traders it's important for us to see the building blocks of these patterns so that we can take action when low risk entry points become available to us. There were plenty of low risk entry points on this move and by watching the charts each day the probablities of the moves became more apparent.

Tomorrow is another day. There "should" be some horizontal support at 12800 area, but we'll see what the market has in store for us on this wacky expiry Thursday.

DOW 6 Month / Daily