Classic stock market chart patterns became classic for a reason: they often anticipate the direction of the price trend.

 

The usual qualifier applies: no market indicator always unfolds like a textbook example, including chart formations. And that's if the chart pattern is correctly identified in the first place. Sometimes the price action appears to be a classic formation, but is not.

 

For example, in 1984-1985 the Dow's price pattern sported the look of a "rising wedge," which is wide at the bottom and grows narrow as prices move up. A rising wedge is a bearish pattern. And in 1985, prices did briefly break below the pattern's lower trendline. But it turned out to be a false break. You see, the pattern was not a rising wedge; it was a series of first and second Elliott waves. Instead of continuing to fall, a powerful third wave carried prices northward.

 

Keep the above in mind as we fast forward to today. Look at recent price action in the Dow Transports. The chart below (minus the title) is from the February 15 Short Term Update:

 

 

 

Here too you see a price break below the lower trendline of the upwardly contracting pattern.

 

Will this price action also prove to be a "false break"? Or is there a key difference between today and our 1985 example?

 

It's a good idea to read our analysis. 

The Short Term Update keeps your fingers on the pulse of near term price action.

And the just-published February Elliott Wave Theorist goes into great detail about the stock market's price pattern. 

In fact, the latest Theorist is over 20 percent longer than usual, and one of its 16 charts says "Weird! Narrowest 2-Month Channel Ever?"

 

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PLUS save 25% when you bundle The Elliott Wave Theorist, Financial Forecast and Short Term Update compared to the regular cost of these services individually.