Focusing on the sideways triangle now under development from late October to now (red triangle) with a vertical side of about 75 points. The indicators such as RSI and money flow especially are lining out sideways verifying the sideways symmetrical triangle taking shape for price. Price tested the top of this triangle as shown by the long white candle print so we will not have to wait long to find out if price is spanked back down to stay inside the triangle, or, if price pops up above and breaks out. The interesting thing about sideways symmetrical triangle patterns is that the first move out of the triangle is a fake-out move. Price will typically move out one side or the other, but then return inside the triangle only to shoot out the other side and that side is the confirmed new direction for price movement.
Thus, keep this in mind over the coming days as price moves out of the triangle. The 75 points can be added or subtracted from where price breaks out of the triangle to forecast the target price. For bulls, they would prefer to see price drop here and slide out the bottom of the triangle, down towards 1225, then reverse back up inside the triangle and shoot out the top side to target, say, 1260 + 75 = 1335. This is the scenario that satisfies the bull case for a strong end of year rally targeting 1320-1335.
For the bear case, price would move up and out of the triangle early this week, up to test the 200 day MA at 1272, perhaps a little more upside, then reverse sharply back down back into the triangle and then collapse out the bottom side to target, say, 1240 - 75 = 1165. Note that this value is also the 62% Fib retracement at 1169. Additionally, 1166 and 1163 are strong S/R levels. Thus, a strong confluence at 1163-1169 gives this target some street cred.
Regardless of which side wins, this analysis shows the game plan moving forward, you know what to watch now as it unfolds. Remember that typically the first breakout move from the triangle is a fake-out move, so if you are bullish for the end of year, you would prefer to see price actually drop this coming week to set things up for an end of year run above 1300. If you are short the markets, you will not mind seeing price print 1272 or so this week since it should reverse back down and collapse out the bottom of the triangle and head towards 1165 for a melancholy finish to the year. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or on any links attached to this site. Consult your financial advisor before making any investment decision.
What is most interesting is that among the hundred plus traders I follow no one talks about the first move out of the triangle to be a fake-out. They all see it as a continuation.
ReplyDeleteHello Dankir, the fake-out occurs typically at about the two-thirds area across the sideways symmetrical triangle. If you look at the August-September sideways triangle note the move lower in late September, many traders jumped on the bear train, only to get slapped hard, as this was the fake-out move and price reversed back up as October began, back up into the triangle then out the top side to start the run higher. Then you gauge the move accoding to the vertical length of the triangle where it started. Textbook move up to that 1285-1290 area.
ReplyDeleteTry to find other sideways symmetrical triangles to study by looking at charts. The current SPX triangle from late October to now has the top rail at about 1263 where we are now as this is typed. The lower rail is now at about 1240, so 1240-1263 is the range that is squeezing price in now, and we are at about two-thirds of the way across the triangle so a move should occur out one side or the other.
Either price is spanked down now at the top rail to keep it inside the triangle, and then we wait until it decides which way to exit, or, price may shoot up and out by the close today which would represent the possible fake-out move to the upside. Time will tell, simply have to let things continue to play out. The current triangle is testimony to the churn now occurring in the markets.
Thanks a lot Keystone Right now we are in the middle again. So much suspense. Am positioned for the downside, but willing to take a fake out to the upside too. I usually hold for 2 months or so. Always enjoy all your well founded work. Thank you from Germany.
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