DJIA, SPOTTING REVERSALS, CONTINUATIONS AND CONSOLIDATIONS

Here's an uncomplicated view of how the Dow in its current state can unfold into a reversal pattern, a continuation pattern of the prior downtrend or a drawn out consolidation. A pair of similar looking yet notably different reversal scenarios of the declining Oct-2007 trendline are presented. Both are Inverse Head and Shoulders formations that come with failure patterns. The discrepancy lies in the sequence of how they unfold. In the first reversal figure - indicated in black - the trendline break occurs before the failure pattern. The other reversal configuration - indicated in green - shows the higher low occuring before the trendline is broken. There are other possible reversal patterns not shown here. The important thing is knowing most, if not all of them, and how they unfold in varying fashion. Equally important is being conscious that as the 2 patterns illustrate - a reversal is not an event. It is a process or a series of events that need to transpire over a period of time before they can be correctly declared as such in the context of technical analysis. This awareness keeps technicians patient and focused - hopefully able to spot new trends in early stages, more often than not putting themselves in a fairly good position to catch relatively big portions of the directional tendencies. For general reference, the typical entry points of trend followers are also indicated in the chart.