Tuesday, January 10, 2012

S&P 500: Triangle Breakout

The S&P 500 has broken above an ascending triangle that has been traced on the chart from Oct. 4, for the lower line, and Oct. 27 for the upper.

An ascending triangle is a pause within an uptrend that is destined, upon breakout, to continue the uptrend to higher price levels. Some say that ascending triangles don't work well. I say that they're like any other technical construction in trading: They work just fine, except when they don't.

A continuation would of the uptrend that began July 5, 2010 at 1028.09 and peaked on May 2, 2011 at 1370.58. The subsequent correction hit its low point, at a higher low, at 1074.77 on Oct. 3, 2011.

So far so good -- it is an ascending triangle, and it is within a longer-term uptrend.

Upon breakout, or so the lore goes, the following rise will be at the least equal to the base of the ascending triangle, stretching in this case from 1074.77 to 1292.66, or 221.89 points wide.

Today's triangle top is 1284.47, add the width, and the result is 1506.36, which would be within a mere 70 points of the 2007 peak, before the Great Recession crash.

All of which is futurology in my book. I tend to look at what's happening now, not at some mathematically determined might-be future.

And the now is this:

The S&P 500 broke above a five-day area of congestion, a near-term bullish signal. It also broke above the previous highest high of 1292.66, set on Oct. 27.

It is, however, important to look at the intra-day chart. Nearly all of the rise came immediately at the open. In the second hour, the high was set, but the price pulled down from the high, and in the two subsequent hours has dropped further. (I'm writing this at about 3 hours 45 minutes into the trading day.)

For practical trading, a decline below 1284 would negate the breakout. That's less than 7 points (0.5%) below the current level. A push above the opening-hour close of 1293.49 would keep me interested in the index as a bull play.

If the upswing continues, next resistance is at 1347, about 57 points (4%) away.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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