US Stock Market: Ascending Triangle Coming To Apex

There is a clear ascending triangle consolidation pattern developing on the major US Equity Indexes, and it appears we are reaching the Apex, or break-out point sooner rather than later.  Let’s take a look at the S&P 500 Index (^GSPC) and see this development.

S&P 500 60min Chart:

The S&P 500 is showing significant resistance about the 920 level which has been confirmed three times, and is showing resilient support via the rising trendline from November 24th to present, which has been confirmed four times (though the early December decline did not fall all the way to the trendline).

What this tells us is that a break in either direction - above 920 or below 880 - could lead to a significant ‘trend’ (continued) expansion move.  Remember the basic price principle:  “Price alternates between range expansion and contraction.”  Using this principle, we can observe the current consolidation - in the form of an ascending triangle - and then expect some sort of expansion move once the market moves out of this consolidation - or balance - area.

The momentum oscillator is also reflecting market consolidation, as it is recording contraction in price swings which is coming to a point about the +10 and -10 indicator levels.

Let’s actually take a closer look at the 30-minute chart for a ‘zoom-in’ on the recent consolidation area.

S&P 500 30min Chart

Notice how the 200 period SMA has contained price on each subsequent test.  The other moving averages, however, have not been as helpful in terms of setting up trades or position management.

From this view, it would seem like there could be a bit more time for price to spend in this range, but not much.  Generally, we would expect price to break-out of the trendlines somewhere between 2/3 and 3/4 of the way to the apex, or the exact price at which the lower rising trendline would intersect the flat, upper trendline.  We’re likely just about there by this measure.

A quick note - traditionally, ascending triangles have bullish expectations and that could indeed be the case here.  I do not ascribe bullishness or bearishness to triangles, but rather note them as consolidation patterns with the expectation that price will likely burst with an impulse move in one direction or the other, and I often advocate avoiding trying to predict in which direction price will break.

Case in point, not long ago, we had a bearish descending triangle in the indexes… which broke sharply to the upside (throughout October before eventually falling to new lows).

Stay on top of this development and try not to be caught off guard by a sudden price expansion move that could happen soon.

Posted in Categories: Contributor, External Research, Stocks, USA.

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Comment by David

2008-12-21 09:42:32

Very timely and interesting article. I will watch developments closely!!

Keep it up

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Comment by invest money

2008-12-30 09:17:45

Interesting article. But until now, it have not break the resistance level. It seems to be running sideways.

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