The Dow Industrial Average is forming a pennant, normally a continuation pattern in a trend. Further bullish signs are:

• increased volume on the two up-days at [1] and [4]; and
• equal highs with rising lows, creating an "ascending" pattern.

The index is headed for a test of resistance at 10570. Failure to break through this level would signal a re-test of support at 10000/9900.

The Dow is undergoing a period of consolidation which may well resolve as a mid-point consolidation. A rise above 10570 would signal resumption of the primary up-trend.
Twiggs Money Flow has crossed above its signal line but is still trending downwards.

The Nasdaq Composite is consolidating above 1900. The false break below this level has been followed by a rally which is likely to test resistance at the opposite extreme of the pattern. Lower highs are a bearish sign but descending patterns are unreliable patterns in an up-trend (that is not over-extended). Low volumes on the daily chart signal ambivalence from buyers and sellers.
Twiggs Money Flow continues to trend downwards, signaling continued distribution.

The S&P 500 appears fairly weak in the short-term, with increased volume and a weak close highlighting a failed attempt to break above Monday's high. Failure to break above resistance at 1150 would signal another test of support at 1090/1080.

The outcome of the last two months consolidation pattern is still uncertain.
A clear break above resistance at 1150 would signal resumption of the primary up-trend; though it may be advisable to wait for confirmation. A break below 1080 would be a bear signal, indicating a possible test of support at 960.
Twiggs Money Flow continues to signal distribution.

The NYSE Bullish Percent Index is at 64.03%; still on Bear Alert status.

Treasury yields

The yield on 10-year treasury notes is down slightly at 4.710%. The yield is consolidating below resistance at 4.84% after the strong breakout. A yield differential (10-year T-notes minus 13-week T-bills) of 3.5% reflects an imminent rates rise.

Gold

New York: Spot gold made a late rally to $394.90, forming a higher low. A rise above 397.20 would signal the start of an intermediate up-trend with a possible test of resistance at the April high of 427.25.

Point & Figure - Triangles

Triangles represent consolidation during an up- or down-trend: when buyers and sellers are, at least for a while, in equilibrium. Breakouts offer significant entry points, either on a continuation or on reversal of the trend.

For a valid triangle there must be at least two retracements counter to the prevailing trend:

• Two columns of Os in an up-trend; or
• Two columns of Xs in a down-trend.

Symmetrical triangles

Symmetrical triangles present a series of rising lows and falling highs. Breakouts may occur in either direction, though the pattern is more likely to resolve in a continuation unless a trend is over-extended.

Ford Motor Co. [F] below has formed a triangle between [11] and [12] in the latest up-trend. There are two retracements (red columns) counter to the direction of the trend so this is a valid pattern.

• An upward breakout entry would be made if the column at [12] rises above the high of the previous column. Stops would be placed below 14.00: the low of the last red column.
• A downward breakout would occur if price reverses back below 14.00. On a trend reversal it is advisable to wait for confirmation: otherwise you could get suckered by a false break.

---

Back Issues

---