Technical analysis of stock trends - 8th edition

Chapter thirty-three: Tactical Review of Chart Action 453
P.U. Fig. 217, p. 487
FIGURE 217. A Broadening Top. This somewhat rare but beautiful and highly
dependable formation developed as CertainTeed made its Bull Market Peak in 1946.
A quick glance at the volume scale in this daily chart shows the high volume on the
final stages of the advance, the dullness during the development of the Top Pattern,
and the increased volume after the breakout.
As we all know by now (or go back to Chapter 10 and review the specifications),
a Broadening Top is a Five-Point Reversal, differing from the Head-and-Shoulders,
Triangles, Rectangles, etc., in that each Reversal must be at a new high or low for
the pattern. It is, if you wish, a sort of reversed Triangle with its apex to the left, the
swings becoming continually wider.
In the second week of May, “CT” (the symbol has since been changed to “CRT”)
made a new Bull Market high at 25 1 /4 (marked “1”). The reaction carried back to
Support at the previous Minor Peak (point “2”) and the following week, “CT”
advanced to another new high at 3, closing 1 /8 point above the previous Top.
Another week had brought “CT” down to point “4” with a closing at 22 1 /2 , three
quarters of a point below point “2.” This, in itself, is not sufficient reason for making
short commitments. Three weeks later, “CT” closed at 25 5 /8 , another new high, at
point “5.” Finally, the stock dropped to 21 1 /2 on July 23, and at this point (marked
“B”), the pattern was completed. Notice the tendency of volume to rise at each
Reversal point of the pattern.
Long holdings would be sold at the market the day after the breakout. But short
sellers should wait for a correction of 40–50% of the move from point “5” to point
“B.” If shorts were put out at 23, we would not worry if the stock advanced for a
time, as it did, without making a new high. The downside move in “CT” went quickly
to 15 1 /2 , and within 12 months to 11 1 /2 .