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Investors should watch out for double and triple tops in market charts as they can signal a fresh wave of selling or a range-bound market, Sandy Jadeja, chief market strategist at ODL Securities, told CNBC.
“If a market attempts several times to break through, then that’s going to create a trading channel, which is exactly what we’ve been seeing on the FTSE and the Dow,” Jadeja told CNBC.
In the double top pattern, a market reaches a particular price level, then backs off and then attempts to make a break through that price level again, Jadeja pointed out. If it fails to break the previous level higher, it can be interpreted as a bearish signal.
“That has actually occurred on the FTSE ... it failed in November, but then made a reattempt in January,” he said. Since the second test the London-based index slumped by 25 percent, he added.
- Watch the full Sandy Jadeja interview above.
Double tops are one of the simplest chart patterns to watch out for and can give “a very powerful sell signal” when combined with a moving average sell signal, Jadeja said.
A close below a market’s moving average tends to signal a fresh move lower. Click here for Jadeja expiation of how to use moving averages.
Sometimes markets stage a third attempt at the peak, forming a triple top pattern, but the sell signal remains the same if it fails, according to Jadeja.
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