Pattern of the Year

I am finding that this is becoming the price pattern of the year - and it ought to look quite familiar to you by now. It has been more popular with the commodities but nonetheless it has become very common (ACI, POT, BTU, MOS, etc. come to mind).

It starts with a nicely trending stock (often 45 degree angle or less) that at some point begins to quickly pull too far away from its trendline...only to come crashing back down with a momentum too great for its former support line to hold.

Then one of two things have been happening: it has either been a free fall (above) or it has climbed its way back to the underside of its old trendline before making new lows.

This pattern is one that I believe can be anticipated if you see it enough times. In case you're curious, the stock shown above is US Steel (X) as of today. And while in this case, hindsight is 20/20, there are likely other similar opportunities out there.

I would look toward the transports, who have over the last several months have held up pretty well. They took it on the chin today and I think there's more downside to come in the intermediate term. Here's a head start: CSX