Triple Tops Don’t Exist: Dow Transports Edition
- Posted by JC Parets
- on May 24th, 2012
We say it all the time, “The more times that a level is tested, the higher the likelihood that it breaks”. This goes for both resistance above head and support down below.
Today we’re looking at the non-existent triple top in the Dow Jones Transportation Average. We’re charting the iShares ETF $IYT to keep things simple. Look at the 3 tops during the first half of the year:
With each test of resistance, more and more sellers will have already sold. The presumption here is that eventually, anyone willing to sell at this level will have already done so. Therefore leaving only buyers up here in the mid-90s. Or the 5300s for the actual Dow Jones Transportation Average.
On the support side, former resistance in the 4th quarter, shown with red arrows, is clearly coming into play. Our polarity principles tell us that former resistance should become support. And this is exactly what we’re seeing as the 200-day moving average adds some more demand to the area.
New lower lows below last week’s support, and it would appear as though more time will be necessary before the next attempt to penetrate through that overhead supply. But I think that with 3 tests already, a 4th and maybe a 5th will come soon. Typically one of these two will is successful. And eventually that resistance in the mid-90s will become support at a future time.
This is the sort of stair-step action that we typically see in a bull market.
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J.C. Parets is the Founder & President of Eagle Bay Capital, LLC. He earned the Chartered Market Technician designation (CMT) and is a member of the Market Technicians Association. More
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