Dow Jones Megaphone Pattern Defines Risk On / Off

Below is a chart of the Dow Jones Industrial Average going back to the 1950’s using monthly closing prices. It highlights two important Dow Jones Megaphone patterns that developed during that time.

But, as you can see below, both patterns have seen breakouts. More recently, the Dow Jones Industrial Average broke out above the Dow Jones Megaphone pattern and has since used the upper edge of the megaphone as support (this last came into play for investors in February of this year).

Dow Jones Megaphone Pattern – Defines Investing Risk-On / Risk-Off

The Dow remains well above Megaphone support at point (1).  This is a positive for longer term investors looking for the “Risk On” trade (or investment). Even though this is substantial support, sentiment reflects an environment where investors are not all that excited about stocks (or the broader stock market). Small speculative investors have very little exposure to stocks at this time (lowest in several years).

Looking at the longer-term “trend” perspective, the risk on trade needs support to hold at point (1) above. That support resides between 16,500 and 16,750 (16,500 is support from a monthly perspective).

If this support should give way, it would qualify as a break of a long-term support line, and send caution to investors… and the stock market.  So keep an eye on this Dow Jones megaphone pattern and upper support line.

dow jone megaphone pattern chart_june 7

Thanks for reading.

More from Chris:  Will This Rising Wedge Pattern Spell Trouble For Gold?

 

Twitter:  @KimbleCharting

The author does not have a position in related securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

 

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