The Trend Reversal
Double top
The double top pattern is a main turnaround that evolves after a comprehensive uptrend and is defined by a rally to a new high, in that case a pullback and followed by a subsequent rally to a new high. As soon as the stock extends to the high, there is a supply overhang and demand falls away along with the share price. The share price retreats to test support levels.
Why does this occur?
The double top figure is played out moderately repeatedly. The general scenario is that more often than not buyers of the share pay too much due to the extended rally, at what time the stock price moves against them the investor stubbornly refuses to take a loss and exit the trade. The double top broadly occurs subsequent to a comprehensive rally to new highs. There is time and again widespread information with reference to the stock from analysts and on or after the media pushing the stock price higher (top 1), eventually the supply is overwhelmed by demand and the share price falls. The traders believe in their purchase as well as hold their positions not wanting to lose money or stubbornly, their pride. The price is in that case supported returning to its recent high (top 2). The first top usually has the experienced traders reducing their positions along with the opportunistic investors. In the main, the additional traders who hold their positions find the share price has fallen over a period of a few weeks supporting the "reaction low". The stock stabilizes as well as at times receives some good media attention; buy recommendations as of analysts or positive company announcements will drive the price back to its recent highs. Commonly the investor who bought in on the first new high sells at their original purchase price, the volume begins to slow. The second wave of investors is now holding the same positions as the first investor. The media along with analysts are back at the good news stories pumping the stock higher, strong volume causes the stock to rise once more. The investor who was exposed to losses on the first top closes out the trade. This leaves the new investor exposed as the second top climaxes forming come to peaks, the double top is formed. The scenario leaves two sets of investors equally disappointed and the sell off begin rapidly.
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The Dow pushed up through the 618% at 10,165/72 therefore that took out the Elliott wave structure downwards for the time being, but it has not taken out the terminal high of 10,408, indeed technically the Elliott count down is still in play, this is major to realize ahead jumping the gun and exiting or going long, the news that pushed the market overnight will be disregarded tomorrow.
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Supply is another fundamental component in market analysis, which relates to the behavior of production and sales within the market place. The supply represents what producers are willing to sell over a wide range of prices for any given time period. The producer is willing to produce a product whilst the market price is equal to or greater than production costs.
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