Both the S&P 500 and Dow Jones Industrial Average have confirmed the completion of a short-term topping pattern on October 23, falling below the price-swing lows of the last month. A double top, occurs when a rally is followed by a correction and the stock or index rallies back to the price level of the prior rally. The pattern is confirmed when the price once again retreats below the correction low, indicating a further slide in the price is likely. A multiple top is similar, except it will have three or more rallies to a similar price area, separated by corrections. The multiple-top pattern in the S&P 500 index is not large - from high to low it is 48.98 which provides a downside profit target of 1376.55. Multiple tops have also occurred in numbers stocks, with technical traders likely looking to take profits on long positions, or establish short positions.

SEE: Analyzing Chart Patterns: Double Top And Double Bottom

AT&T, Inc (NYSE:T), the telecom giant, completed a multiple-top formation in mid-October. The price peaked near $38.50 (high is $38.58) on multiple occasions between August and early October with the correction low between the peaks of $36.43. The topping pattern completed as the price dropped below that correction low. The height of the formation is $2.15 to $38.58 minus $36.43 and gives an estimate of the expected drop in price. Deduct $2.15 from the low of the formation, also called the breakout price, and the target is $34.28. The stock closed at $35 on October 23 which means the double-top profit target is in close proximity. There is a series of former price lows just above $34 though, so if the price falls below $34 it could trigger a bigger sell-off. A rise back above $38.58, while unlikely in the short term, would be bullish and negate and the multiple-top bearish pattern.

AT&T multiple top pattern

The peaks of the multiple top formation in Arthur J Gallagher & Co. (NYSE:AJG) stock is less defined, with each peak moving to visibly different levels, but still in relatively close proximity to one another. Since August, each peak has been near $37, with two peaks in September making it to the $37.50 region (unadjusted for dividends). Two correction lows are of interest, the first being the August 31 low at $35.41. This level has already been breached and indicates a price slide to $33.36. The next important low is at $34.46, and represents a larger multiple topping pattern. If the price breaks that level, the target is $31.36. There is some upward trendline support intersecting near $35, therefore, if a rally can punch back above $37.56 it negates the bearish topping pattern.

SEE: Technical Analysis: Support And Resistance

Arthur J Gallagher multiple top formation

BCE, Inc. (NYSE:BCE) broke below the lows of a topping pattern on October 19. Once again, the price peaks did not reach the exact same levels, but areas of support and resistance are clearly defined. The high of $45.68 marked the high of price peaks and the formation, and $43.45 was the low. This gives a target of $41.22, but if that target is reached there's little in the way of support until the $39.50 to $39 region. What will act as resistance on rallies will now be $43.50 to $44. If the stock pops back above $45.68 the bearish pattern is once again negated.

SEE: Interpreting Support And Resistance Zones

BCE topping pattern

Avery Dennison Corp. (NYSE:AVY) is near a breakout point, but hasn't broken out yet. Therefore, the pattern hasn't actually completed but it is one that can be watched. Peaks in August and October at $32.30 mark the main highs of the pattern and $28.91 the low. If the low is penetrated, the target to the downside is $25.52. As of yet that has not occurred, and as long as the price stays between the aforementioned high and low price the stock is range bound. A rally above $32.30 negates the pattern and is likely to push the stock above the $32.78 52-week high.

Avery Dennison near breakout

The Bottom Line
The multiple top occurs quite often, but are often missed because the more tops that are present, the more and more it appears to be a ranging market. Because it is possible for a range to develop at any time, multiple tops are generally not traded by technical traders until a breakout has occurred. When the price drops below the correction low(s), that is the signal the chart pattern is in place and that a further slide in the price is likely. As with any strategy, it doesn't work all the time, therefore always know and manage your risk.

Charts courtesy of

At the time of writing, Cory Mitchell did not own any shares in any company mentioned in this article.

Related Articles
  1. Chart Advisor

    Stocks at Important Technical Levels

    These stocks are breaking or holding at key support and resistance levels. How they react here impacts the direction of the price over the coming months.
  2. Technical Indicators

    Explaining Autocorrelation

    Autocorrelation is the measure of an internal correlation with a given time series.
  3. Chart Advisor

    ChartAdvisor for October 9 2015

    Weekly technical summary of the major U.S. indexes.
  4. Chart Advisor

    These Oil & Gas Stocks Have Reversed

    It's been a long downtrend for oil stock owners, but there's hope. These four oil and gas stocks have reversed and may keep trending to the upside.
  5. Chart Advisor

    4 European Stocks to Consider Buying

    European companies, listed on US exchanges, that are providing buying opportunities right now.
  6. Investing Basics

    3 Key Signs Of A Market Top

    When stocks rise or fall, the financial fate of investors change, as well. There are certain signs that can reveal a stock’s course, and investors don’t need to be experts to spot them.
  7. Chart Advisor

    ChartAdvisor for October 2 2015

    Weekly technical summary of the major U.S. indexes.
  8. Investing

    How Diversifying Can Help You Manage Market Mayhem

    The recent market volatility, while not unexpected, has certainly been hard for any investor to digest.
  9. Technical Indicators

    Why MACD Divergence Is an Unreliable Signal

    MACD divergence is a popular method for predicting reversals, but unfortunately it isn't very accurate. Learn the weaknesses of indicator divergence.
  10. Chart Advisor

    Expecting a Big Breakout In These 4 Stocks

    These stocks are tightly wound following big moves, and upon breakout more big moves could ensue.
  1. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  2. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  3. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  4. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  5. How are double exponential moving averages applied in technical analysis?

    Double exponential moving averages (DEMAS) are commonly used in technical analysis like any other moving average indicator ... Read Full Answer >>
  6. How do you know where on the oscillator you should make a purchase or sale?

    Common oscillator readings to consider making a buy or sale are below 20 or above 80, respectively. More aggressive investors ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!