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From the April 1986 high, the market consolidated for 11 months in a triangle pattern, never able to exceed either the extreme April 1986 high or even the first corrective high of August 1986. In March 1987, the market made an attempt at the August 1986 swing high but closed down near the low of the month in an outside reversal month. From that decisive failure to advance, the market declined sharply the following month below swing and consolidation support levels, confirming that April 1986 was likely to be the termination of the bull campaign and that the market was likely to either correct the advance from the July 1984 low or the entire bull market from the September 1981 low.

If we examine the activity from the weekly chart perspective, we see that there really was little difference between the campaign and the monthly chart.

It is important to review the market activity at this point to see what can be learned of the nature of the bond market for this bull campaign:


The first rally swing was strong, more so than a normal corrective countertrend swing if the bear market was to continue (9/81 - 11/82).


The extreme top of the initial advance was made after a six-month consolidation period, with the final high (5/83) only slightly exceeding the prior high on an outside reversal month — that is, the market attempted once more to continue to new highs after a prolonged period of consolidation but failed and began to decline sharply. The failure to fulfill the higher prices expected after a prolonged period resulted in a capitulation of those expectations and sharply lower prices.


From the 1984 low, price made two relatively short advancing swings into the obvious resistance level of the prior swing high. Once again, price slightly exceeded the perceived resistance (6/85), only to fail and then enter a consolidation of several months near that resistance level. Price had now made three attempts at the same resistance level.


On the fourth attempt (11/85), price broke out sharply above the triple top in a breakout that resulted in a sharp advance to new highs. Keep in mind my rule of four: "At the fourth attempt of support or resistance, a major decision will be made. A failure to continue the trend will usually result in a sharp countertrend move. A successful breakout will usually result in an accelerated, high momentum trend swing." To a lesser extent, this is true on the third attempt or the challenge of a double top or bottom.


Following the April 1986 high, price again underwent a fairly tight triangular consolidation period of almost a year, never able to exceed the extreme high. Expectations and frustrations were again building over time.


The final capitulation was again preceded by an outside reversal month, which topped just short of the prior swing high.