Dow pushes to the Sweet Zone

I first visited the floor of the Chicago Board of Trade in the mid 1980,s and was first introduced to the rising wedge and falling wedge pattern. Those who have been to my courses or have followed my trading will know that I value these patterns more than any other. My trading partner Tom Hougaard says I see wedges under the sink.

There is an enormous rising wedge on the Dow. I have pointed this out many times. It’s easy to see and I have shown the daily view of the Dow cash below. The third trend line is the target line. This evening since my last post the Dow has reached the 1.618 extension of the pullback which occurred Friday before last.

The market in question usually pushes up through the top line defining the wedge and this area was known by the floor traders as the “Sweet Zone”. The Dow can easily get 50-100 points above the trend line, suck in lots of breakout followers and then spit them out.

Analysis - 7th Feb 2011

The wedge pattern has a hit rate of at least 70%. If it fails the market tend s to fly up the page.