May 10, 2000
Chart patterns are something I rarely pay attention to when looking at the major averages. The reason is that everyone sees these charts printed at every financial Web site or newspaper they look at and when a pattern is so obvious, such as a head-and-shoulders top in the
Dow Jones Industrial Average
, it rarely comes to fruition. This is because everyone sees it so everyone prepares for the eventuality of it. And the market will always do its best to make the most number of folks wrong.
However, after having received several emails lately about the diamond pattern in the DJIA chart, I've decided to show it here. The diamond pattern is extremely rare. In many ways it is a head-and-shoulders pattern with a V-shaped neckline. And we can hem and haw over it, but the pattern is there and I don't even have to use a thicker pencil just to connect the lines properly; this pattern is right out of a textbook. According to John Magee, co-author of
Technical Analysis of Stock Trends
, the diamond's "natural habitat" is at major tops. Should the DJIA break 10,400, this pattern would be confirmed.
Since I tend to put more faith in the underlying statistics than patterns per se, a break of 10,400 would not in itself be bearish, in my opinion, unless the statistics were confirming this break.
As long as we're looking at patterns, the flag in the
Nasdaq Composite Index
is so obvious I can't believe I haven't heard one thing mentioned about it. And flags of this manner are not bullish, either. A flag is a process of minor fluctuations that move opposite to the previous move. For example, this flag slopes up after a down move. What caught my eye mostly was the fact that during the formation of a flag, the volume will shrink to a relatively low level. And we all know that's happening. If volume should pick up (as it did yesterday) with a break of this flag on the downside, it would send the Nasdaq down again.
The same as with the pattern on the DJIA, the underlying statistics would have to confirm such a move for me to believe the move was for real.
For an explanation of these indicators, check out The Chartist's
Helene Meisler, based in Singapore, writes a technical analysis column on the U.S. equity markets on Tuesdays and Fridays, and updates her charts daily on TheStreet.com. Meisler trained at several Wall Street firms, including Goldman Sachs and Cowen, and has worked with the equity trading department at Cargill. At time of publication, she held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She appreciates your feedback at