Miniature Triangle in the Indexes

Feb 15, 2008: 11:00 AM CST

The S&P 500 and Dow Jones Indexes are forming a small triangle consolidation pattern, meaning prices are consolidating to a possible apex which may break soon.

Let’s check it out (daily):

Onto the NASDAQ:

The red trend-lines represent the relatively symmetrical triangle on the daily chart (and momentum beneath). Most triangles break 75% of the way to the apex (which is where we stand at the moment). They often represent indecision and lack of conviction of both sides in the battle for price control between the buyers and sellers.

Triangles can be continuation patterns, or reversal patterns, and it’s extremely difficult to predict which direction the price will break, but let’s remember that the overwhelming news for the market is negative, and the price is in a confirmed downtrend with significant overhead resistance, both from prior support levels and the moving averages.

Option volatility players may want to start scanning for options that take advantage of a burst in volatility, such as straddles or the like.

Either way, it appears price is headed for an ejection point up or down, and you should potentially adjust your risk accordingly.

2 Comments

2 Responses to “Miniature Triangle in the Indexes”

  1. Stock Market » Miniature Triangle in the Indexes Says:

    […] Corey Rosenbloom wrote an interesting post today on Miniature Triangle in the IndexesHere’s a quick excerptTriangles can be continuation patterns, or reversal patterns, and it’s extremely difficult to predict which direction the price will break, but let’s remember that the overwhelming news for the market is negative, and the price is in a … […]

  2. jj Says:

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