Over the last several days, we have published Minor Reversal Patterns, as published in John Hill’s book, Technical and Mathematical Analysis of Trends in the Commodity and Stock Markets. A few more followup posts on this topic will be posted. Feel free to browse the blog for previous pattern posts, and as always, if you have any questions please don’t hesitate to ask.
The reversal patterns listed are based on only several days of action. They can be very useful when used in combination with the overall chart pattern and when used with other technical tools. I will emphasize that these factors or formations used by themselves can result in trouble and lead to whip saw action. Also, market action may not be exactly as shown. There may be several more days of movement. My intention is to introduce new concepts.
Pattern 13: THREE DAY LOSS OF GAIN
Wide spread and high volume at “A” followed by more than complete loss in next three days with modest to high volume and low closing is a sign of weakness.
Pattern 14: UPTHRUST REVERSALS
“A” in all cases is a rally top.
Shown are four examples of upthrust action, which indicate a superior quality of supply with a good bet that entire recent action has been one of distribution and a good-sized downmove is about to take place. It is best when heavy volume is present on the breakout, which would indicate abundant supply
(a) In this example, one day’s action breaks above a previous rally top, volume shows an increase, and the close is above previous rally top. However, on the following day, the market may make a slightly new high and then proceeds to sell off the balance of the day. It closes near the bottom below the previous day’s low.
(b) It takes 2 days for the supply forces to overcome demand in this example. On the first day you have breakout action above a previous rally top. The second day is generally characterized by heavy volume and a narrow range or spread. On the third day, supply forces win the battle. The stock or commodity sells off all day. The daily range is increased. The close is on or near the low and below the close of the day that it broke out of the formation.
(c) In this example, the commodity exceeds a previous rally top by a good margin (and all the technicians around the country talk about the big breakout). However, there is no follow-through on the next day. This is followed by a number of inside days (inside the range of breakout day) and you may have an attempt to go through the top. When this fails, the demand forces give up and you have a day of heavy supply, which sells back down below the rally top, closes at or near the bottom and below the low of the breakout day.
(d) In this case the previous rally top is exceeded by a gap. The day’s action shows a narrow range and heavy volume indicating abundant supply. Demand forces give up the following day. The daily range increases. Close is at or near the low, below the rally top and below the close on the day just preceding the breakout.
Copyright 2015, John Hill & Futures Truth Company