The broadening top pattern that has formed on the Australian Stock index called the “Spy” is a rare pattern. The pattern is discussed in both “Trade what you see” (Leslie Jouflas) and “Profits in the Stock Market” (H.M. Gartley).  In discussing the pattern Gartley says  “…Fluctuations grow increasingly sharp as profit-glutted speculators grow more reckless in pushing their favorites. Quite possibly,  well informed selling is completed chiefly in the early part of the broadening formation, and the later stages find (probably less experienced) trading their favorite stocks in wild swings which attract increasing less demand”.  This is a good explanation of the psychology that is going on within this pattern and this quote also speaks to the “rotation” of professionals getting out of positions that are being absorbed by novice investors. The weekly chart of the Spy shows that 5 point required to complete the pattern and the subsequent breakout to the downside this past trading week.

Kevin Riordan

This entry was posted on Sunday, May 23rd, 2010 at 1:21 pm and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.