A unique pattern on the Dow Jones Industrials Average has been in the works for almost two decades. Developing since the late 90’s, this broadening formation of price is called a megaphone pattern. Just as the pattern suggests, price forms boundaries, that when connected with trend lines, form the shape of a megaphone. We can take a look at this formation in the chart below.
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As you can see, these trendlines identify important price levels on the Dow, a major U.S. largecap index worth paying attention to. When we connect the lows from the late 90’s, 2002, and 2009 we get a downward sloping trend line. When we connect the highs from 1999 and 2007, we get an upward sloping trendline. What makes this pattern significant is that price is reacting strongly to this level. In fact, just recently, price rapidly fell through it and now this 15 year old upper trendline is providing stiff resistance. Let’s take a closer look.
(click to enlarge)
As you can see, this trendline has significance. We are not interested in U.S. largecaps until this trendline is recaptured. That could happen today. It could happen tomorrow. No one knows. If anyone tells you they know where price is headed, they are fooling you. As for us, we’ll continue to let price guide us. And right now, this development carries significant risk.
As always, trade safe. We’ll keep you updated on price.
Disclaimer: Nothing in this article should be construed as investment advice or a solicitation to buy or sell a security. You invest based on your own decisions.