« Broadening Formation on Nasdaq Composite »

The bulls have enjoyed a very good couple of weeks and there is no denying the bullish undertone. Most of the indices are challenging the recent highs or have even broken the same. Ordinarily, such a breakout would be seen as opening up a potentially solid move to the upside into the end of the year. These projections are derived from patterns such as ascending triangles, bullish rectangles and the like. Moreover, the momentum indicators are not near overbought territory as yet.

So things look potentially rosy for the bulls. There are one or two things that do not jibe well with a continuation of upward price action, however. The primary of those is the fact that volumes have been below average and falling, during the course of the most recent leg upwards.

Nasdaq Composite

Another developing story that needs attention is a broadening formation that has shown up on the chart of the Nasdaq Composite. If resistance is found at or below the upper line of the formation, there is the possibility that the formation will become a megaphone top, which will lead to a sizeable decline in the index over the several weeks, especially if the lower line of the pattern ends up being broken following any finding of resistance at the upper line.

Given the potential impact of the setup, this chart is now our current 'Chart In Focus.'