This site will be about the Dow formation that we see below. This formation is known as the "megaphone formation" or the "broadening formation." Some call it "the jaws of death."
The formation consists of five waves, three up, and two corrective waves to the downside.
The broadening formation is indicative of a market in turmoil, with sentiment swinging wildly from one way to the other. Incredibly, the broadening formation has appeared in every major bear market since 1929. It appeared prior to WWII in 1929. It appeared in 1957 and 1965-66. We saw a broadening top in 1987 and again in 1998-2000. The most recent broadening formation we saw was in 2004 to 2008.
I have long speculated about the sentiment basis of broadening formations. Each broadening formation is made up of three rising waves and two corrective waves. As far as sentiment is concerned, I believe broadening formations are the result of ... Log in or subscribe to continue reading.
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