Bubbles and double bottoms in an uptrend market

THROUGHOUT 2017, many observers were terrified the Dow Jones was going to collapse. There was nothing in chart behaviour that suggested this would happen and those who applied sound technical analysis were rewarded with a 24 per cent return for 2017.

Now investors want to know if this apparently unstoppable trend is at risk in 2018. Chart analysis helps to develop an answer.

The first observation is that a retracement in the Dow Jones is a high probability. A retracement is when the market diverges significantly from the underlying trend, and then falls or retraces to the underlying trend line. If the divergence between the current high and the underlying trend is very large, then it is a bubble and Dow Jones could collapse. It is not in a bubble but without a retracement, a bubble could develop.