«Here are six common signs you see at market tops.»
Traders,
Historically, the stock market has risen in three years out of four. That means most of the time equities are in an uptrend. But sometimes, the trend ends. Uptrends shift to downtrends; bulls give way to bears. While it can happen all at once, it usually doesn’t. Instead, tops are a process that plays out over time.
Price peaks are similar, not exact. And if you know what to look for, you can usually identify when the trend is weakening and most vulnerable to reversing. Here are six common signs you see at market tops.
- Slowing momentum or compression in the distance between pivot highs.
- A double top or “M” pattern.
- A head-and-shoulders pattern formed by a lower pivot high.
- Breaking horizontal support zones to form a lower pivot low. This usually completes and confirms the previous two patterns.
- Breaking longer-term moving averages such as the 50-day.
- A kiss goodbye that arrives as a lower pivot high after breaking support.
I listed them in chronological order to provide a sense of how tops progress. You don’t always see all six.
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• Uptrends – a series of higher highs and higher lows
• Downtrends – a series of lower lows and lower highs
• Sideways – trading horizontally between floors and ceilings or a channel
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