The Dow: Projecting the Probable Path of Price (Part 3)

12/17/2008 10:33 am EST

Focus: STRATEGIES

Timothy Morge

President, MarketGeometry.com

The area marked by the six Energy Points is called a “hallway,” and this particular hallway does indeed have an upward bias to it. We can expect price to follow this probable path of price until it either, 1) trades above or below the boundaries of the hallway; or 2) price runs into a stronger, tested line, and this more powerful line acts as resistance to price. There is a down-sloping red major Median Line, originating from pivots set out in 2007, ahead of price as its travels up this hallway. This down-sloping red Median Line and its Parallels have stopped the advance of price many times over the past year. And if you look at the last two major lows on the first chart carefully, it has also done a great job marking where price should run out of down side directional energy. If price is still trading within the boundaries of the hallway when it approaches the down-sloping red Median Line, I’ll be very curious to see if it is able to trade through this major down-sloping line.

Let’s look at how price may trade within this hallway, and how it may eventually break out:

chart

You can see I added a potential path that price might take. To draw this route for price, I looked at the existing chart and saw that price had already tested the blue up-sloping Median Line twice. If price came back up and tested this same Median Line a third time and failed to break through, the chart would then show a formation commonly called “Three Drives to the Top.” This formation often marks major highs if price then begins taking out swing lows. You can see I have price topping out right at a test of one of the Energy Points—thus completing the third “Drive to the Top.”  Then I have price trading lower, right into the Presidential inauguration.

More tomorrow in Part 4…

Timothy Morge

timmorge@gmail.com
www.medianline.com
www.marketgeometry.com

Related Articles on STRATEGIES