After that post, the Dow Industrials rose over 3000 points heading into January before embarking on a long overdue correction.
So what now? Let’s take a look at an updated chart (see below)…
The Dow has spent the majority of the past 70 years inside parallel channels (points A, B, and C). And as you can see below, the Dow’s latest breakout above a megaphone pattern (point 3) has lead to a test of the upper channel (point 4). This is acting as resistance right now.
Look familiar? It should. This same pattern took shape during the last megaphone breakout (point 1). That breakout lead to a test of the overhead parallel channel (point 2) in 1987. That channel acted as (rising) price resistance until 1995, when it broke out once more and went on to test the upper channel boundary.
If this is any indication, it’s understandable why stocks are stumbling a bit here (at first pass). BUT, if they follow the same pattern, they may continue to test this rising channel resistance:
The SPDR Dow Jones Industrial Average ETF (DIA) rose $1.81 (+0.73%) in premarket trading Friday. Year-to-date, DIA has gained 0.85%, versus a 1.33% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Kimble Charting Solutions.