Sunday, February 3, 2013

Typical Topping Pattern: Not There Yet

Take a look at recent topping patterns as they are fairly typical. There's two steps to each:
  1. Green arrows: After a long run, momentum starts to weaken and price tests a key trend line or moving average (here, its the Bollinger mid-band). 
  2. Yellow area: Price pushes higher, falters, tries a third time and makes a double top (or lower high).
Look at where $SPY is now. It has not even tested a key moving average yet (part1). When it does, buy the dip and expect price to move higher before making a discernible topping pattern. If nothing else, look for an actual lower low before expecting a top to develop.