ATMASphere Aug 2014

Within an average period of less than a month, the pattern had preceded
three of the most important stock market tops of the past several decades.
He extended his investigation and compared other results obtained to
these tree periods of time discovered at first.
Data showed that The Dow Jones Industrial Average, on average, advanced
1.7 % from the close of the 21st day in the pattern to the highest
subsequent intra-day high after the pattern emerged.
On average, it took 10 trading days to reach that high, and the subsequent
decline averaged 15.2%.
One of the items that appeared significant was the length of the pattern
before the consecutive streak is broken. Once a pattern moves beyond 27-
28 market days, it has far less a chance of being significant.
Other important consideration was how the pattern ended. When the
churning streak ended with a high ratio (above 1.95) or a low ratio (below
0.65). All of them ended their consecutive streaks with low ratios.
Finally three basic rules were required to identify a "Sign of the Bear."
1) There must be a streak of 21-2727 consecutive trading days where the daily
advance/decline ratio remains above 0.65 but below 1.95.
2) That consecutive streak must end with a downside break, i.e. with an
advance/decline ratio below 0.65.
3) The downside break in the streak must be confirmed with either a two
day average advance/decline ratio or a three day average advance/decline
ratio following the end of the streak being below 0.75.
Technically speaking the rationale that explains the pattern defining a "Sign
of the Bear" is:
Search for periods of market strength where the market went for at least a
full month without a big down day.
Period of investor complacency (a full month without a meaningful day of
selling), but not the kind of upside breadth required to sustain a healthy
market advance.
All of this is what a technician could define as a market top.
The confirmation of the pattern is a sharp turnaround to the downside as
required by rules number 2 and 3.
AUGUST 2014
ATMASPHERE | 22