In today's video, when listing the usual three types of endings of which there was no sign, you also said "and there is no loss of momentum or development of a wedge" or something similar. Could you elaborate on precisely what you are looking for there? Is this maybe a type 4 ending? 

Eoin Treacy's view

Thank you for this question which may be of interest to the Collective. The defining characteristic of a Type-2 top is a massive reaction against the prevailing uptrend. However, what comes before that proverbial bolt-from-the-blue often gives us a clue what to expect. This is a subject we cover in detail at The Chart Seminar. 

A Type-1 top is characterised by acceleration. When such a wide overextension is evident relative to a trend mean, the potential for it to be followed by a massive reaction increases so we then get a Type-2 reaction following a Type-1 acceleration. 

Not every market accelerates higher. Sometimes they lose momentum, spending a longer time ranging. A phrase David coined decades ago is that a “lengthier range is seldom a reliable continuation pattern” and this is often the case with Type-2 tops. When the market either spends longer ranging or develops a rising wedge characteristic it suggests the imbalance between supply and demand which animated the bull market has changed. In short, some dissonance appears in rhythm of the trend. These characteristics are not necessary conditions for a massive reaction against the prevailing trend but they happen with sufficient regularity that we need to be alert to what they might portend. 

Let’s look at an example. Cast you mind back to 2007 when the DAX Index had been trending consistently higher since 2003. It lost momentum in July but the progression of higher reaction lows remained intact. The failed upward break in December followed by the massive drawdown in January 2008 concluded the top formation development phase. That did not give us a clue to how much it would subsequently fall but it certainly suggested a medium-term peak was in place.