The foundation of Dow's work was based on the analysis of price trends, comparing swing highs and swing lows to define and track the trends over time.
An initial look at the chart of Microsoft (MSFT) may suggest a consistent uptrend of higher highs and higher lows.
And while this short-term uptrend is a valid observation, this also means Microsoft may be forming the dreaded "bear flag" pattern, which often precedes a major downdraft.
A bear flag pattern occurs when you have an initial downtrend, in this case, the drop from $470 to $385 from early July to early August of this year.
If MSFT would drop below $410 in the coming weeks, that would complete the bear flag pattern, and would also push the price back below the 200-day moving average.
Persons:
Charles Dow, Downside, David Keller
Organizations:
Microsoft, MSFT, CMT, CNBC, NBC UNIVERSAL