The Descending Triangle

 

By Charles Delvalle

When you’re watching a bear market unfold, you might prematurely look for a bottom that might not exist.  What I want to show you today is a chart pattern that can confirm the continuation of a bear market.  That way, you can short, being sure that the stock or index has further down to go.  You also avoid buying into a false bottom.

The pattern I’m talking about is called a descending triangle.

A descending triangle consists of two things.  First, a straight support line that’s been touched more than once by the stock (or index).  The second thing you need is a downward sloping trendline that acts as proven resistance.

As this pattern progresses, buyers come in at the support line, thinking they’ve found a deal and take the stock higher.  But the buyers get weak toward the top, and selling brings the stock back to its resistance.  Every time the buyers take over, they end up taking the stock up less and less, showing a lack of conviction for higher prices.

Once the stock or index crosses under its support line for more than two days, the downtrend has continued and you should be able to profitably bet on lower prices.

As you might have noticed, this pattern is exactly what the Dow Jones is in now.  If the Dow continues along this pattern and breaks under 11,750 with conviction, then you can be sure that the Dow will head lower.