Early Warnings Provided by Channel Patterns

admin — Wed, 24 Jun 2009 20:12:11 +0000

Channels of this nature often provide advance notice of a change in the character of the stock market. For example, notice the nature of the series of recoveries that took place between April and early July whenever the midline of the channel the primary trendline, was approached. Rallies during April and May were almost instantaneous. The rally in early July required a little more than a week of bas building before the Composite could reach the top of channel; when prices did reach the top of the channel, they backed off quickly rather than running upward along the channel as they had done in June.
The recovery that started in mid-July never made a serious attempt to reach the upper boundary of the channel. Prices moved upward at a very moderate slop before they declmed, for the first time since March, through the supporting, mic channel trendline. In tl& case, the diminishing slope of the recovery, coupled with the failure over two weeks to reach the upper boundary, warned of the incipier breakdown.
The capability of stock prices to rise rapidly to and to even overshoot the upper boundary of a trading channel suggests a favorable market climate and high prices to come. Diminished slopes of advance and failure to reach the upper boundary suggest incipient market weakness.

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Early Warnings Provided by Channel Patterns