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Basil Chapman: Dow in Breakout Mode

Ryan Puplava talks about the Trump announcement to withdraw from the Iran deal and its implications for energy and the financial markets. Basil Chapman, host of The Tiger Technicians Hour joins us on the show to discuss how small- and large-cap stocks are in a breakout mode with bonds breaking above their long-term yield. Lastly, we speak with Marc Chandler, Global Head of Currency Strategy at Brown Brothers Harriman, about his outlook on the US dollar, emerging markets, and European stocks.

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Basil Chapman – Chart patterns that repeat

While there are many patterns one can identify in the stock charts, two important formations that act as fractals, repeating over and over in all timeframes are:

  • The Arch, or lower case h-pattern
  • The Cup, or U-formation

Within the ChapmanWave® methodology, the 4th highest Peak, notated as Peak-D is also important

In the CW (Chapmanwave) notation each higher Peak is essentially graded and labeled alphabetically, up and down. Rising highs are upper case A-G sequentially, and lower case a-g in declining troughs. Peak-D, or trough-d is where there could be a change in the sequence.

The tops that were accomplished at all time highs in the daily charts of the DJIA, SPX-500, QQQ-NDX100, and even the very important SMH-Semiconductor ETF were all Peak-Ds

The use of technical indicators, such as the MACD, Slow stochastic, OBV (On Balance Volume), trendlines, and MAs- moving averages assist in the analysis

The Dow’s Peak-D all time high top, with subsequent h-pattern
dow peak

The Dow (@24772), made a Peak-D top on 1/26/18 @26616, plunging 12.2%, to the 2/9/18 low of 22360. Then began a rally and arch failure pattern (what I call the h-pattern), and pierced that left side low of 23360 on 4/2/18, slipping to 23344. Then there was a smaller arch with a higher low @23580 on May 2, beginning another rally. The lower case h- is now forming the m-pattern.

This range bound trading could continue until it breaks decisively above major upside resistance @25800s, or key support @23300s.

The longer-term monthly Dow has formed a Peak-E, as the technicals are becoming very important:

dow monthly

  • The MACD remains strong, and, while the 9-diff (green) is declining, it has not crossed under the 26-ema (red)
  • The Stochastic@69% is weakening below the comfort zone of 80%+, hinting at some internal weakness
  • The OBV-On Balance Volume (blue) is holding well, so far
  • The 9-ema(black) @23990s is key support on a closing basis
  • The CW Storkleg formation morphed into the CW Propeller Shaft pattern, making May’s candle really important

The SPX-Index (S&P500) has much the same pattern as the Dow, except it did not get close to the 2/9/18 h-pattern low on 4/2/18.

The QQQ, the NDX100 Index ETF, IWM-Russell2000 and SMH-semis ETF are doing much better here.

QQQ-NDX-Index ETF(@169s): Daily, weekly, monthly charts
qqq daily weekly monthly

IWM-Russell2000 Index ETF (@159s): Daily, Weekly, Monthly
russell 2000

The IWM is an eyeblink away from its 160.30 all time high!

The Dollar Index: Daily, weekly, monthly (Peak-D top)
dollar index

Bond yields: The 10-year $TNX.x very long-term monthly
bond yields

The 35-year bear market (from the Peak-D Sept 1981 major high) in the 10-year $TNX.x yield (@2.9%) is just now testing the major Down Channel’s resistance line that started at the Oct 19, 1987 high. The 200-ema (orange) has not been tagged since then. It is now @3.3% as the TNX is @2.9% here; in Leg-C and climbing. 

In the context of bond yields, an expression I came up with decades ago, ‘The Japanization of US bond yields’, evolved as I observed Japans’ yields just shrink, and shrink. My long-term expectation was that somehow, some way, the Fed would be forced at some point to lower interest rates here in the US. After three decades we are just now beginning a slight normalization as yields have been rallying in unison, that is, the 30-, 10-, and 5-year rates.

My big picture also looks very closely at: Skyscrapers, superfast cars, mega-cruiseships, sartorial splendor, hairstyles, swearing, unrealistic expectations, a worldwide speculative bubble - maybe crypto currencies, as a wild socio/political/geopolitical/economic Coda Phase unfolds. 

This extended Coda, like a Beethoven coda ending, could last a lot longer than one would expect. It remains a work in progress

Basil Chapman is the author of a daily very comprehensive newsletter, The Opening Call, available at tfnn.com, where he is also the host of a market call-in stock market show (1-877-927-6648), The Tiger Technician’s Hour, M-F, noon to 1pmET. Seen live or archived on any mobile at Tiger TV or tfnn.com 

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