A Little Daily Index Triangulation

Oct 19, 2008: 2:14 PM CST

Despite the volatility of last week, a relatively orderly symmetrical triangle is forming on the S&P 500 Index which could be resolved early next week.  Let’s examine the S&P 500 daily structure and then the 30min chart for clearer insights on this consolidation pattern.

S&P 500 Daily:

The daily chart looks horrendous for long-term investors and indeed it has been.  Price was unable to successfully rise above the 50 day EMA meaningfully since May (what a long time ago that seems).  Price is now beneath all three major moving averages and they are in the most bearish orientation possible.

Price appears to be winding down into an equilibrium level (consolidation pattern) to digest some of the rampant movement over the last few weeks.  It would seem logical to expect some sort of upside break and test at least of the falling 20 period EMA or beyond, but we wait for the current structure to unfold for insights or clues of that occurring.

Momentum made a new significant low and I cannot underscore how large a low that was.  The oscillator is the difference between a 3 period and 10 period exponential moving average, and on October 13th, that differential (spread) was 100 S&P points – remarkable.  The spread now is around 40 points and will likely narrow as price consolidates.  Still, new momentum lows are not bullish long-term.

I wanted to highlight the triangle consolidation forming on the lower-time frame charts.

S&P 500 30-minute chart:

As of Friday’s close, the triangle was well-defined and perhaps has a little more ‘way to go’ until it is complete, or when price breaks out usually 2/3 to 3/4 of the way to the “Apex” or place where the converging trendlines meet.

If the triangle is the dominant structure, then a test of 890 to 900 – the rising lower trendline – would be the expected play, particularly since the most recent up-swing was a full and complete 5-wave Elliott Pattern (that I highlighted and predicted on Thursday and Friday’s posts).  I’m finding success applying Elliott’s principles to the shorter time frames.

We’ll see if this structure continues to play out, and will be waiting the eventual break – up or down – of the triangle which should lead to yet another volatile or sustained price move (which ‘feels like’ it will be to the upside – but no promises yet).

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4 Comments

4 Responses to “A Little Daily Index Triangulation”

  1. Andrew Stanton Says:

    In keeping with your Elliott wave theme; a triangle is usually appears as a fourth wave and has an a-b-c-d-e internal structure. If that is what is happening then the SPX has just begun wave d and once the final wave e rally is finished then it will make new lows in a fifth wave. Another thing in favor of that count is that third waves are usually the most dynamic and clearly that is what happened prior to the triangle.

  2. Corey Rosenbloom Says:

    Andrew,

    I agree 100% with you. From my counts, we’re in a larger 4th wave – which appears to be resolving into a triangle instead of a 3-wave impulse up – and if that’s correct, then we are in store for new lows.

    It’s not a popular interpretation, but I think that’s the preferred count at the moment.

    Thank you for the comment!

  3. Don Da Mon Says:

    The S&P keeps testing around 985. From an earlier comment I made, from their to our recent 840 bottom would make for a “measure move”. Does this retest favor an upside break? Or is a measure move to test 840 still on the table?

  4. Milehigh Says:

    Is it possible that the 8th was A? Which would mean we completed E on the 17th and headed down?