Updating the SP500 Symmetrical Triangle Pattern

Nov 16, 2011: 11:08 AM CST

So far, the Symmetrical Triangle Pattern has held firm, containing this week’s moves into the upper and lower compressing trendlines.

Let’s update the original “SPY/S&P 500 Symmetrical Triangle” post from earlier in the week with a mid-week perspective:

The dominant trendlines have compressed to the 1,260 and 1,240 area (plus or minus a few index points) which also happens to be the compression zone between the very important 200 day Simple Moving Average (a firm reference) and the rising 20 day EMA (1,243) along with the rising 50d EMA (1,225).

The main idea is that traders expect price to breakthrough one of these boundaries and produce a “feedback loop” or breakout impulse move in either direction.

An upward expansion break initially targets 1,300, then on a firm breakthrough of 1,300, we enter “Open Air” that could continue the breakout towards 1,360 or 1,370.

On the downside, an initial break targets 1,220 then 1,200, but if the 1,220 confluence support fails which continues under 1,200, we would expect a similar impulse down towards the 1,120 support line.

As a trader, it’s best to see triangles as neutral patterns instead of injecting a directional bias into the mix – buyers and sellers are battling for dominance, and a consolidation/compression pattern suggests equality or equilibrium in the battle.

The breakout/impulse move is a sign one side became dominant over the other, leading to “Popped Stops” and liquidation, creating the Feedback Loop.

Here’s a peek into the Hourly Chart with indicators:

The “Midpoint Value Line” is 1,250 and we can clearly see the Blue Compression Trendlines coming in at 1,240 and 1,260.

We often see breakouts of Symmetrical Triangles from 2/3 to 3/4 of the distance from the height (where the Triangle begins) to the Apex (where the trendlines converge) – that’s 66% to 75% of the way towards the Apex.

Let’s see that Apex on a Pure Price chart:

Extending the Pattern forward, we see a proposed trendline convergence – Triangle Apex – at the very end of November (this varies depending on how strictly you draw the trendlines).

That would place us currently in the “Potential Breakout Zone.”

I’ve seen triangles continue on and breakout all the way to the Apex, and of course I’ve seen triangles behave as classical analysis/research has suggested.

The main idea is to keep watching this pattern as it develops and be ready to act/react should any breakout develop – keeping in mind that an initial breakout may result in a trap, which would suggest a harder break in the opposite direction.

Either way, this is the pattern a lot of traders are watching, so be on guard for the expected move… or the unexpected move (which, unfortunately, tends to happen when a pattern becomes too obvious and too mainstream).

Corey Rosenbloom, CMT
Afraid to Trade.com

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5 Comments

5 Responses to “Updating the SP500 Symmetrical Triangle Pattern”

  1. J.C. Parets Says:

    nice work Corey

  2. mavrich Says:

    corey with such bad technicals I can't see this thing breaking anywhere but downwards. Can you play devils advocate for me here?

  3. jared Says:

    You've posted what everyone sees.  The real question is: Where do you place your bet?

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