We've been researching and discovering that almost all the major stock market tops of the past century were marked by a Broadening Top pattern. This pattern, also know as a Megaphone, which also looks like a set of jaws, is uniquely characterized by two mirroring boundary lines. The top boundary line is ascending; the bottom boundary line is descending. What is amazing is that each boundary line has the same slope, one rising, the other falling. We found another one this week: 1965-66's pattern. Pure coincidence, however the 1966 top occurred exactly 21 years ago to the day, February 9th.
The lines are formed by simply drawing trend-lines connecting the peaks and connecting the troughs. Each line is formed by connecting at least 2 points. In other words, neither boundary line is manufactured by a biased analyst. Rather, it is formed where the market decided to top and bottom along its path to a major top. What are the odds that the slopes of these trend-lines would be exactly the same? What are the odds that seven of the greatest market tops of the past century in the Dow Industrials would bear the markings of this pattern? This is not random. This is a normal pattern of distribution and market buying/selling psychology that naturally leads to major tops, and subsequent declines ranging from 10 percent to 40 percent over a period from a month to 11 months.
These patterns were found in 1929, 1957, 1965-66, 1972-73, 1986, 1987, 1998-2000, and now 2004-2007. These were the big-boy tops of the past century. The Jaws of Death pattern.
And, the punch line? We have the exact same pattern as these 7 other occurrences right now in the Dow Industrials. We show it next. While the positioning of points c and d vary slightly in each of the 8 patterns, what seems to matter most is the Megaphone boundary lines. That is the key characteristic. Points a, b, and e are positioned similarly in all 8 patterns.
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Robert D. McHugh, Jr. Ph.D.
Main Line Investors, Inc.
Robert McHugh Ph.D. is President and CEO of Main Line Investors, Inc., a registered investment advisor in the Commonwealth of Pennsylvania, and can be reached at www.technicalindicatorindex.com. The statements, opinions and analyses presented in this newsletter are provided as a general information and education service only. Opinions, estimates and probabilities expressed herein constitute the judgment of the author as of the date indicated and are subject to change without notice. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision. Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment. Neither Main Line Investors, Inc. nor Robert D. McHugh, Jr., Ph.D. Editor shall be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided.