V.1:6 (143-144): The Funnel Formation by ORY J. CANAL

V.1:6 (143-144): The Funnel Formation by ORY J. CANAL
Item# \V01\C06\FUNN.PDF
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The Funnel Formation by ORY J. CANAL

The Funnel formation is a technical analysis tool that you may find very useful in analyzing stocks. To begin this discussion of the Funnel, let's locate one on a chart. For this we will use the chart in the back of the Wall Street Journal . It has the industrials, transports, rails, and of course volume of all the stocks traded on the New York Stock Exchange for that particular day. (The paper doesn't cost very much and if you make a mistake on the chart, you can buy a fresh one tomorrow.) The Funnel is formed by points 1, 2, and 3, 5, 6, and 7. Points 1, 2 and 3 form an uptrend line, while points 5 and 6 form a downtrend line, with both lines meeting at point 7. The result looks like a funnel. (or megaphone—All you need now is a handle on the uptrend line.) This market phenomenon can and does occur in the intra-day moves, in weekly moves, monthly as is illustrated, and gigantic moves which take place after years.

Points 1, 2, and 3 are support points, that is, where the market finds support, is held there, and reverses direction. Points 5 and 6 are resistance points, that is, points where the market is unable to rise any further, meets resistance, and reverses direction. By connecting points 1, 2, and 3 we create the support line, the bottom of the Funnel. Doing the same with points 5 and 6 creates a resistance line on the top of the Funnel. If these two lines are extended out far enough, they join at point 7 forming the Funnel. Line 9, 10 has been drawn to show that the market is in an uptrend, and to illustrate exactly where the Funnel fits in. Line 9, 10 is also called a resistance line.

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