The Cat's Ears Pattern

Eavesdropping The Bear

Heres a rare but reliable bearish formation: the cats ears. A visual hybrid of double-top and failed-cup formations, the cats ears
formation occurs during downtrends, predicting further price decline with a price target.
Many technical analysts believe the most profitable patterns are the continuation ones. This is because the market has
already established a trend and the odds favor its continuation after a short pause. Flags, pennants, rectangles, wedges,
and head & shoulders are the widely known bearish continuation patterns. Some time ago, I discovered one more
continuation pattern that occurs during downtrends, which I named cats ears (CE) due to its distinctive appearance. The
CE is rare but reliable and offers a well-defined price target.
THE MODEL
In Figure 1 you can see the textbook model of the CE pattern. The CE takes place in the middle of a six-phase context:
Phase 1: The price is in a severe downtrend
Phase 2: The price pauses for a while and oscillates
Phase 3: The price bumps up then quickly recedes, creating the cats left ear
Phase 4: The price oscillates again, creating the scalp of the cat
Phase 5: The price makes a second bump up but again recedes, creating the cats right ear
Phase 6: The price breaks the scalp line (the support line defined by the lows in the cats scalp) and resumes its previous
downtrend.

FIGURE 1: THE TYPICAL CATS EARS PATTERN. The typical cats ears pattern takes place in a context of six phases. The price declines
(phase 1), pauses for a while (phase 2), bumps up abruptly, and quickly falls back, creating the cats left ear (phase 3). In the sequence, it
oscillates in a relatively narrow range, giving shape to the cats scalp (phase 4) and again bumps up and recedes, creating the cats right ear
(phase 5). As soon as the price breaks the support line defined by the cats scalp (scalp line), it falls further down.
USUAL VARIANTS
Figure 2 summarizes the usual variants of the pattern. The left and right ears may not be exactly the same height and the
scalp line may be slightly above or below the low level of phase 2. While the cats ears usually develops in a context of six
phases, there are cases where the second phase is absent. There are also cases where phase 2 is long and volatile, so the
price appears as if it forms a bottom, but the emergence of the cats ears pattern is the last attempt of the price to recover
before it dips again.