Plunge Patterns

Follow-up on Global Markets – Weekly Review 5.

In the May 25 Weekly Review, I flagged a number of high-risk groups showing leading weakness.

As a result of my scans, I said “the list of important Stocks with Negative Momentum is expanding.”

Most of the mentioned groups and Stocks are down significantly this week, but what *really* stands out to me are the very first highlighted in that list — the two that looked the most risky at the time:

ADBE

• I flagged the Software group as a potential high-risk area, and this Stock in particular stood out to me.

• I emphasized ADBE as “plunge potential” in that chart.

• It developed a clear top in Q1, followed by a gap down in March, from which it never recovered.

• Stocks which complete a topping structure, collapse and then trade sideways without any bounce, forming a compression as highlighted previously, are likely to plunge again (in direction of the prevailing trend).

• Here is the updated chart: I still think this has the potential to completely fall apart from here — and no, I don’t think it’s “too late to Sell” or even cut exposure completely. Some of the biggest collapses in history come from Stocks with “oversold” charts.

• Remember: ultimately there’s no such thing as oversold in a core downtrend.

CRM

• Here, I flagged the classic Bull Trap at the prior 2021 high, followed by a similar extended 3-month topping structure as momentum turned negative in April (more than a month ago).

• I certainly didn’t expect it to post the biggest drop in nearly 20 years today, but surprises happen IN the direction of the trend — and the trend was unequivocally down since April — and in a market still making new highs, this was an even more concerning signal from this Stock.

Keep these charts & ideas for future reference:

• These are some clear examples of what I’m looking for in terms of potential Plunge Patterns — I try not to use this phrase unless absolutely necessary, and when I use it, this is what I mean.

• Studying these patterns helps to get a read of the market, especially when a group of Stocks is developing them simultaneously — which increases the broader potential risks significantly.

• IF the current market correction continues (I think it does), I’ll flag more groups and Stocks as they develop these potential patterns — there could be many more.

Thanks for reading.

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