Thursday, June 25, 2009

First sign of downtrend - Dow Theory

Dow Theory defines market trend in a simple way: uptrend is formed by a series of rising peaks and rising troughs ( higher highs and higher lows ). Downtrend is the reverse, it is formed by a series of declining highs and declining troughs ( lower highs and lower lows).

Dow has broken the lower trend line of the uptrend channel as shown above and it has set a high that is lower that the previous high and a low lower than its previous low. Downtrend has started.

Nasdaq has remained within the uptrend channel but it has started to form lower high and lower low.

S&P is similar to Dow. Let's see whether there are more lower highs and lower lows from now on and whether Dow is going to form the "inverted head and shoulders" as shown below. That can be an excellent entry point.


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