US Stock Market: Extreme Triangulation

As I mentioned earlier Friday morning, the US Equity Indexes are experiencing a strange phenomenon - let’s call it ‘Extreme Triangulation.’  It’s not actually a triangle, but price is being almost entirely contained within the range of the previous day, drawing price to a finely balanced zone.  Let’s view this action from multiple sources.

S&P 500 15-min chart:

What I wanted to highlight with the S&P 500 (^GSPC) is the fact that we’re narrowing each day’s range as we come into balance.  I’ve taken the day’s high and low and extended them fully into the next session to show how the highs and lows are compressing and price is staying completely within the prior day’s range.  This is an abnormal phenomenon to occur for more than one day.

To be far, Tuesday’s action was quite volatile, but Thursday and Friday - with the exception of one nip outside the range - were both in the previous day’s range.  This is telling us that the market is digesting news from all directions and is currently in ‘balance’ between buyers and sellers… and that it is likely to break soon from this balance into a trend move (or directional burst).

Let’s see this same pattern on the NASDAQ (^IXIC), which is showing far more volatility and gaps.

NASDAQ 10 min chart:

NASDAQ based traders have had a rough time this week, as price made perfect plunge on Tuesday, did an opening test drive on Wednesday, was quite erratic on Thursday, and made a sustained up-move after a large gap-down on Friday.  Just look at the intraday action on the chart - it makes one very confused chart.

Finally, let’s sum up the action with the Russell 2000 (^RUT) and see its symmetrical triangle consolidation pattern forming.

Russell 2000 10-min:

Again, with one slight nip out, price has contained itself within two converging trendlines that will be forming an apex very soon about the 445 level… which is almost exactly where price is situated currently.

Price cannot stay contained within a triangle forever, and it is expected to break one way or the other (odds favor to the downside but that by no means is guaranteed).

The best play may be to place a sell-short stop around 440 and a buy (long) stop at 450 and join the market once it breaks, with the other side serving as an initial stop.  That would be easier than trying to trade within the triangle or predict in which direction price will break.

Keep watching these patterns closely and do a little extra analysis on the weekend.  We could have a sustained breakout move on our hands sometime next week.

Subscribe by RSS Subscribe by Email