a must read on us market a fall is near, page-10

Recently came across some stuff by Victor Sperandeo (Trader Vic)... he seems to have done some good work on identifying trend changes. The Wikipedia notes are included below, for interest. The 2B rule seems relevant here, for a longer term trend change, and the 4 day rule for an intermediate term trend change. The 1-2-3 rule mentioned first is pretty generic.

1-2-3 Rule
Sperandeo identifies a change of an uptrend as

1. Trend line (defined above) broken.
2. Prices no longer making new highs.
3. Prices fall below a previous minor rally low
Or conversely for a downtrend

1. Trend line (defined above) broken.
2. Prices no longer making new lows.
3. Prices rise above a previous minor rally high.
Either of 1 or 2 is a probable trend change. Two of the three conditions is an increased probability of a change. All three is the definition of a trend change.


[edit] 2B Rule
Point 2 above is essentially a failure of prices to carry past a previous rally (or previous selloff). Sometimes prices go just past then immediately reverse. Such a case is Sperandeo's rule 2B,

2B. If prices rise just above the previous rally high but then immediately fall back down.
Or for a downtrend change,

2B. If prices fall just below the previous low but then immediately rise back up.
Sperandeo regards 2B as a powerful pattern, and in assessing the probability of a trend change he weighs it higher than any other single criterion. The advantage of a 2B is that it lets the trader get almost the exact top (or bottom) of a move (with a stop-loss at the failed high or low). Even if it worked only 1 in 3 times the reward side is excellent due to getting in early.


[edit] Four day rule
The four day rule is Sperandeo's favourite pattern for a change in intermediate trend. The rule is

In an intermediate trending move, a reversal in the form of 4 days against the trend is highly likely to be a trend change.
This rule is based on his examination of trend changes in the Dow Jones Industrial Average from 1926 to 1985. He defines a variant as the "four-day corollary",

In an intermediate trending move, a sequence of 4 days with the trend followed by 1 against is highly likely to be a trend change.
This rule is looking for a climax over a series of days, instead of a single high-volume climax day.