Finished the Paint Job

It may have taken its sweet old time in forming its bearish "megaphone" topping formation after a steep multi-year uptrend, but Sherwin-Williams finally confirmed that top this morning after an earnings miss and subsequent gap lower.

Although I elected not to hold my SHW short through earnings, as I almost never hold through EPS, we have been discussing the "megaphone" top inside Market Chess Subscription Services as an educational point.

After an established uptrend, the megaphone top physically looks like a megaphone, denoted by the light blue lines on the daily chart, below. We have a pattern of both higher highs and lower lows, which leads to a broadening price pattern. This type of price action can signify buyers slowly losing control of the action after being firmly in control for an extended period of time.

Simply put, what is likely happening is that we have an increasingly loud argument taking place between buyers and sellers, with each high and low becoming more pronounced and violent. Eventually, something has got to give. And, again, give the prior trend leading to widening price swings the edge slowly creeps towards the bears. 

Here, as long as SHW now holds below $274 I expect bounces to be sold, with the now-confirmed major top in place.