"I would like to refer you to the IBM chart candlestick 1 yr daily. The rise since 1 Sept has been a perfect and uninterrupted 45% in a tight channel. Indeed a very tight channel. There are quite a few similar patterns around at the moment. Can you please tell me more about this kind of move and how it typically ends. Obviously it can break the trend line down which is what I would expect but what else is relevant from a technical standpoint? It could break up but that would surely only be a blow off?

"Incidentally the $ index is not dissimilar, going down, and it seems to me that this may be ending with a key day reversal - your views please."

Eoin Treacy's view Thank you for this topical question. One of the central tenets of the Behavioural Technical Analysis we practice and upon which David based The Chart Seminar is the study of consistency characteristics. (The next Chart Seminar will be in London on November 18th and 19th).

You can't get more consistent than a trend that moves in a single direction in such a remarkably tight fashion. Big moves both up and down occur when there is a void between supply and demand. In an uptrend, such as IBM's, prices will continue to move higher and might even accelerate, until that demand is satiated. Let's list the consistency characteristics:

1. emphatic completion of a yearlong consolidation.
2. seven consecutive weeks to the upside so far
3. higher minor reaction lows
4. no reaction greater than $14 since August.
5. the lengthiest minor reaction has lasted six days

By definition a consistent trend is a trend in motion so, as long as these five consistency characteristics remain intact, the short-term upside can continue to be given the benefit of the doubt. Since we know what the consistency characteristics are we can script what an ending might look like.

As you say, a dramatic upward acceleration would be a blow-off. A trailing stop in the region of $16 would be appropriate for traders and it would mark a clear inconsistency and at least a short-term trend ending.

An alternative is that prices lose momentum and move into a lengthier consolidation which would signal at least a pause for the short-term uptrend and potentially a medium-term reversion towards the mean, depicted by the 200-day MA.

A clear downward dynamic, that has an unquestionable impact on investor confidence, which might also have key reversal characteristics, could also indicate a short-term ending.

At The Chart Seminar, I teach that lengthy trading ranges are explosions waiting to happen. This is because ranges are boring relative to trending phases which encourages supply above the market to lower offers and demand below the market to raise bids. This helps to thin out supply above and demand below the market creating vacuums. Once these are hit, the market can move faster and farther than anyone expects and will continue to advance until supply again approximates demand.

If we take a step back, IBM, while consistent, is becoming increasingly overextended relative to the 200-day MA. Rationally, we know that it is only a matter of time before the next medium-term reversion towards that mean begins. As you mentioned, the US Dollar has an inverse correlation to IBM and other outperforming instruments such as silver. The US Dollar remains a funding currency for speculative traders and is a mirror image of IBM's consistency characteristics. It is well worth keeping an eye on the Dollar's chart for signs that the downtrend is losing bottoming because it implies the opposite may not be far off for risk assets such as outperforming stocks and commodities.