REGION 5 TEXAS EDUCATION ASSOCIATION

I want to show you a study that is remarkable in that it shows obvious pattern trading but not in a single stock rather an entire index, in this case the NASDAQ. The slides here are chronologically sequential and can not be put together after the fact to make a point. They were annotated and posted as they happened and were charted in my Trader's Talk Live training sessions. I have a group of students who subscribe to spend several hours per week charting and being trained to read and trade off chart patterns. What you will see is the break of a trend and the steps it takes to morph into a new trend.

Note that the lines were drawn before the pattern fully developed, demonstrating that the pattern was recognized and laid out before the price played into the lines. Now the pattern could have broken at any time. The lines did not dictate what the stock / Index could or could not do. Rather the lines showed the pattern and the targets that would be reached if the pattern continued. Each pivot point that was reached gave an opportunity to trade off the price reaction to a critical decision point.

Feb 23rd the index dropped to recent support rally with the up trend line just below. A lower top also was formed. We identified the support and noted that the long term line was just below.

Now, notice that the next day held support but reached down intraday to bounce off the trend line. As it moves up it stalls in line with lower tops forming a wedge pattern. Now it is a powerful pivot point as descending tops collide with a long term support trend line. A move to the upside is a break out the target will be 2155. A break in the support line gives weight to the developing down trend.

• The next day drops right to the support line the break down signals the end of an uptrend that began in March 2003 and changed angles in November 2003. It moves on down to the bottom of the trading range of the new trend. This set up is another Obvious Bracket Trade. The Resistance line is defining the current trend and the Support and resistance lines show that there is attention being paid to the target points. The pile of lumber is taking the shape of a nice house.
• As a double bounce / bottom pounds the support line, the upside target is the top of the range at about 2020. The downside targets would be sliding down the support line or dropping to the next hard price support of 1900, the last major rally point.

• Two days later, the big gap and drop to 1900 signals the recognition of the support area. Returning to previous rally points is a common pattern. From here, the market sentiment can be accurately tested. The public is not the critical catalyst here. The big traders here will be testing to see if the public is finished selling off. If there is equilibrium, the public / market may be ready to follow a lead to the upside.
• Try as you like, you will not find news to explain what happens the next three days. To quote an analyst on CNBC who speculated at length about what prompted the big move last Thursday," I guess we don't really know".