2000-2002: Dow Industrials
The above chart shows the Dow Jones Industrial Average on the weekly scale before and after the bear market
of 2000 to 2002. The first thing I notice is the weekly price range shows large swings. This
is probably due to the small number of stocks (30) involved in the average calculation.
A broadening top chart
pattern appears during 1999 and the Dow reaches a high at B. That
high marks the end of the bull market despite the average moving horizontally for the next 1.5
The partial rise
at point A predicts a downward breakout. That does occur, but it
takes over a year. Between the breakout and the end of the broadening top, a
descending triangle has an upward breakout.
This is bullish and a descending triangle with an upward
breakout is one of the chart patterns I look for and trade.
The rise after the triangle breakout did not last long and the index tumbled, leading to the
start of a large broadening bottom. The
index broke out downward at C, but
that lasted just another week before the index made a large upward rounding turn, an
inverted and ascending scallop (shown
but not highlighted between C and LS). The bottom of the scallop ended at the start of a
head-and-shoulders bottom. The
head-and-shoulders is not symmetrical, meaning that the left
shoulder (LS) is closer to the head than is the right shoulder
(RS). The head of the head-and-shoulders bottom marked the end
of the bear market. The industrials after the right shoulder low climbed in a straight-line run.
2000-2002: S & P 500 Index
The Standard and Poor's 500 Index shown above has a large
diamond top chart pattern. The peak in this diamond marks
the end of the bull market in the S & P 500. The breakout from the diamond is upward but
the index fails to make a new yearly high. The index tumbles, forming
a descending broadening wedge. An
inverted and descending scallop
lifts investor's hopes but then dashes them when the index rounds downward. It bottoms at
A, bounces and forms a slightly lower low at
B, and a slightly higher low at C.
The three valley pattern is a triple bottom.
Point B marks the end of the bear market for the S
& P 500.
A higher low (C versus B) is one
of the ingredients of a trend change, but it is not a guarantee of success.
Look at points 2 and 3. The higher
low (3) and higher high are bullish but the index falters and
dives. The 1, 2,
3 pattern looks like a head-and-shoulders bottom and indeed it is.
It confirms as a valid chart pattern when the index crosses the green neckline. But in this
case, the rise did not last long and the market tumbled, continuing the bear market.
2000-2002: Nasdaq Composite
The last chart shows the Nasdaq composite on the weekly scale. An
Adam & Adam double top
chart pattern (points A B) signals a bearish turn for the
composite. The market drops, forming two
large inverted and descending scallops just
before the composite bottoms. Points F,
D and E might be called a
head-and-shoulders bottom, but with the unsymmetrical shoulders in both time and price, I
would not pay attention to it. Rather, points D and
E form an ugly double
bottom which calls the end of the bear
market (the low at D, is the turning point in the high-tech
market from bear to bull).
-- Thomas Bulkowski
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