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Rick

Diamond

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Diamond

An uncommon but recognizable reversal pattern that begins as a broadening formation and reverts to a symmetrical triangle after several swings to make a four-cornered pattern. Normally occurs only in very active stocks, and shows up more often during tops.

Dupont is a fairly active stock, and displayed a diamond pattern in a daily chart for the last half of 1998. The broadening formation begins in September, and changes to a symmetrical triangle in mid-October. By late-November, all four corners have formed. Ultimately, the stock price penetrated the lower boundaries of the diamond, and continued to decline over the next three weeks.

Notice the three technical indicators plotted above the chart. All three show very little volatility, possibly suggesting investor indecision as the diamond moves towards consolidation.

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