MAJOR AVERAGES APPEAR TO BE FORMING SHORT-TERM TRIANGLES -- THAT REDUCES THE ODDS THAT A LOW HAS BEEN SEEN AND SUGGESTS ONE MORE MOVE INTO NEW LOWS MAY BE NEEDED

CONVERGING TRENDLINES ... One of our readers pointed out that the short-term pattern of the last eight trading days has a triangular look. A "triangle" is a trading pattern that is characterized by two converging trendlines. I've applied them to hourly bars in the following charts. The converging trendlines in Charts 1 (Dow Diamonds) and 2 (S&P 500 SPDRS) look like potential "symmetrical triangles" in the making. That's usually a contination pattern. In other words, it increases the potential for another dip into new lows (or at least a retest of the October lows). The pattern in Chart 3 has the look of a "descending triangle" for the Power Shares QQQ Trust. [A descending triangle has a flat lower line]. That's more likely to hit a new low. The Nasdaq 100 fell 5% today and was the market's weakest index (note the late selling). By contrast, the Dow and S&P 500 lost 2.5% and 3% respectively. Another sign of a triangular pattern is the dropoff in volume during the recent bounce. Keep in mind that these are "short-term" patterns and have no long-term significance. They do increase the odds, however, that the recent market bounce is more an interruption of the downtrend than an end to it. The good news is that triangles often precede a final downleg. In Elliott Wave terms, they're usually a fourth downleg in a five wave decline. That would suggest that the sharp decline that started in September needs one more move into new lows before it's complete. That would also put the Dow and the S&P 500 closer to major chart support at their 2002-2003 lows. Any breaking of the lower trendlines would increase the odds for another dip into new lows.

Chart 1

Chart 2

Chart 3