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Massive & Ominous Double Top Formation at Trader’s Narrative





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Has anyone else noticed this technical formation? I’m sure many have but I haven’t heard a lot of noise about it.

It is only visible on a very long term chart and boy, it doesn’t look good at all. Double top formations are among the most reliable, which makes this ominous. The sheer size of it is also not good news for the market because a measured move would take the S&P 500 Index (SPX) to … well, let’s just say no one, not even a bear would like to think of a world with the index at that level.

SP500 long term double top formation

The only consolation I can give myself is that it is reminiscent of the very large head and shoulder formation everyone saw towards the bottom of the last bear market. If you look at the chart you can make it out.

The left shoulder occurred in 1998, the large head from 1999 to 2001 and the right shoulder in 2002. The measured move for that technical formation was also hair raising. But it never actually happened even when it broke below the neckline. It did however, give a lot of doomsday scenario fodder for the perma-bears.

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20 Responses to “Massive & Ominous Double Top Formation”  

  1. 1 Johan Lindén

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    Babak,

    “Double top formations are among the most reliable”. Really? Can you pull out ONE scientific or even close to scientific study that says that? I have used many hundreds of information sources during the years, but not once have I seen that being proven.

    As youo wrote yourself, “… reminiscent of the very large head and shoulder formation everyone saw towards the bottom of the last bear market”. Sure this isn’t as likely?

    Thanks and have a good day!

  2. 2 Ragnar Danneskjold

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    Hey Johan,

    Seems like your betting against a further collapse happening. Don’t bet against it. That wouldn’t be good for your financial or mental health!

    Regards and good day!

  3. 3 Ed Mullins

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    Can’t stand the suspense … if this is a typical double-top formation where would that leave the S&P at the end of the trend???

  4. 4 Babak

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    Ed, the top was 1550 and the completion line is at 850 (approximately). Which means the measured move is 700 points… which would take us to 100 points on the S&P 500 - back to what you see was the beginning of the bull run in the early 1980’s. Now go get a clean pair of pants.

  5. 5 Ed Mullins

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    Ouch. Are you sure the measured move is in absolute terms, not percentage terms? The latter would put the S&P at 466 +/- when it’s over.

  6. 6 JohnT

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    Kind of looks like the Freeport CrapMoran 5-year chart. FCX baby.

  7. 7 Johan Lindén

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    Ragnar,

    “Seems”? Thanks for your concern regarding my health, but I have written no such thing.

    However being judgmental will be really disastrous for your financial health!

  8. 8 Babak

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    Ed, yup, this is basic technical analysis.

  9. 9 debreuil

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    Yeah, it looks like this a bit : )

  10. 10 RT

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    I’ve been a technician for years. I do think you nailed the the “Head N Shoulders”. Price patterns have been able to show the mind set of traders for years. The H&S you pointed out just verifies that.

    Good call
    RT..

  11. 11 buzgz

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    I don’t think we should worry about this. After all, no other TA has worked lately.

  12. 12 Gurraj

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    I see the same type of formation (double head) for DOW also.

    For s%P this might take us all the way down to 4k, very scary!

  13. 13 avengine

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    this is very scary too, I heard more and more people talk about the 2nd wave of the sub-prime problem, would this also related to the problem that we are seeing now.

  14. 14 CONTANGO

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    …..and if it decides to form a TRIPLE TOP than all the DOUBLE TOP talk was nonsense.

    Assuming that the world has had it’s fill of bubbles for a while I think we are more likely to drift around the 25 year trendline level for some time to come.

  15. 15 sands

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    I actually did a yahoo search to see if anyone else noticed the long term topping formations in the Dow and the S&P and this link came up in the search…

    Yup…I noticed the exact same thing…We’ve actually completed the pattern by closing below the 800 level in the S&P and around the 7,000 level in the Dow…

    These patterns are HUGE and and I do not think most folks realize just how severe this really is…According to the swing rule we would see the S&P fall into the 100 range!

    Then look at the Dow and apply the swing rule there..Were talking anywhere between 1,000 and 4,000 on the Dow…

  16. 16 Nilay Saha

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    Nothing is impossible in this market. Only saving grace is the money printing that is being done to reinflate this bubble. My analysis also shows a similar story.
    (http://rksinvest-usa.blogspot.com/2009/03/sp500-target.html). Except I have looked at daily chart which also shows a measured move on a smaller time scale ….

    I still hope this does not happen but atleast if it happens we shall not be surprised by it. the charts never lie…

  17. 17 Nick

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    I’ve been thinking the same thing over the last year as well… Between our financial mess and deteriorated stature in the world, investors seem to be rendering a disturbing verdict on the future economic viability of the US, just as they’re doing to a company when its stock double tops. Plans for $4 trillion of inflation only bolster their case.

  18. 18 Shankar

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    Ha Ha.. that was a good laugh - looking back from 2011, se what a bull crap this is. Double top is the most ominous/reliable indicator.. S&P in 2011 is at 1345 - so much for the reliability!

  19. 19 Johan Lindén

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    As I said.

  1. 1 TheTraderBlog.com » Morning DOW - Broken


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