Home > Short-Term Trader > S&P 500 forming ‘High-Level’ Triangle

S&P 500 forming ‘High-Level’ Triangle

Since last Thursday we have been in the process of forming a 'high-level' triangle. The 30 handle width of the pattern from Thursday's high to Monday's low dictates a minimum measured move of about 25-30 points once it breaks. Key word being – BREAKS! Anticipating the resolving direction of a pattern can be a frustrating game, so be patient. Today we closed right at the top side trend-line and as I write this post the futures have just sold off several handles.

If a gun was placed to my head and I had to pick a direction I would lean on the side of the bulls. First, the primary trend is up, 2nd the Russell 2K is leading the way by closing to yet another bull market high, and 3rd this is one damn resilient market. This morning we managed to shrug off an early morning sell-off spurred by further credit concerns with Greece and negative earnings reactions by rallying 20 some odd handles from the lows to the closing bell highs.

However, due to this being such a high level pattern and the size of the triangle being relatively scant in comparison to the massive up move we can't rule out the possibility of reversing lower and breaking down. These powerful formations can act as both continuation and reversal patterns.

In accordance with Elliot Wave theory, the high level nature of this formation has created a '4th wave triangle'. This means that should we break out we will be entering the final thrust of this up move before correcting.

The key level I am watching on the upside is located right around the 1225 level where there is confluence between the 200 week SMA and 61.8% Fibonacci retracement level from he peak of '07 to the trough of '09. In January, we tested the 200 week EMA and it was precisely the high before a 9% correction.

Indeed, it would be exciting to see such technical perfection should the market rally right in the zone of confluence before reaching a peak and rolling over.

On Monday, I went over several historical sentiment extremes which at some point in the he near future are likely to come into play. I believe we are quickly approaching that inflection point.

Any questions or comments, as usual feel free to email me at paul@macro-trader.com 

60 Min Chart of S&P 500

Categories: Short-Term Trader
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