Some months ago we plotted a number of longer term patterns in the US market. Looking at the Dow Jones Industrial Average below, we noted an inverse head and shoulders pattern with the neckline around 9120. This pattern suggested a break of the neckline would be bullish in the medium to longer term. This has occurred and the pattern is now firmly in play. We also noted the existence of an Ascending Triangle which is quite common as part of a broader head and shoulders pattern. Essentially both chart patterns are traded using the same set up. Buying a break of resistance and setting a target equal to the depth of the pattern. In this case, the depth equals 2600 implying a pattern target of 11700.
This is certainly a longer term target however we’ll look for a number of factors to monitor progress. The higher low structure is our primary concern. Each dip in the market should remain higher than the last. If this occur as it has been, the trend remains strong. The biggest immediate test of this occurs around 9700 which is historical resistance. The next key level becomes 10,000, a psychologically important number the market will focus on. We’ll revisit this longer term pattern regularly to update you on the broader market structure.