Symmetrical triangle

Yesterday follow-through bullishness was a welcome sight, but at the same time, it raised additional caution flags as we approach the 50-day average resistance on the SPY and the IWM.  The DIA still has to rally significantly just to reach its 50-day with the QQQ’s remain the dominant market leader.  Looking at the index charts, we now see the possibility of a tricky symmetrical triangle pattern.  The Symmetrical triangle pattern gives us about 50/50 odds of it breaking higher or breaking down.  The large range between the high and low makes the current pattern particularly challenging.

If you recall it was just one week ago when the Dow rallied 400 points in a single day.  The next day it gave it all back, and that was when the index had managed to break above the 50-day.  Now the dilemma we face is that the big rally yesterday only brought is back to test the underside 50-day average.  Fortune may favor the bold if your right on direction but the bold could also lose a fortune if they happen to be wrong.  Volatility remains high so plan your risk accordingly.

On the Calendar

Today’s Economic Calendar begins and ends with Fed Speakers today on the lead of the FOMC announcement on March 21^st.  Dudley speaks at 7:30 AM, Brainard at 7:00 PM and Kaplin at 8:30 PM.  The Redbook number is out at 8:55 AM as well as a couple of bond events which are very unlikely to move the market.  However, the Factory Orders report at 10:00 AM can move the market and according to consensus will see a decline 1.2% in January.

On the Earnings Calendar today we have 142 companies reporting results.  Stay vigilant as the first quarter earnings season drags on and on.

Action Plan

A very encouraging day yesterday as indexes followed through on from Friday’s bullishness.  The higher low has now developed a potential wedge pattern or what many call a symmetrical triangle.  The SPY and IWM are not testing their respective 50-day averages but still have the resistance levels above as well as the downtrend yet to conquer.  Believe it or not, the Dow needs to rally 400 points more just to test its 50-day averages as resistance, so there is still a lot of work that needs to be done by the bulls.  As of now, the Dow will have to prove it can get back over the big round number 25,000 which it could do battle with today.

A wedge pattern (symmetrical triangle) can be a tricky pattern to negotiate especially if that pattern has the huge range between the highs and lows we currently have on the DIA, SPY, and IWM.  The current rally has produced a lot of good-looking charts.  Keep in mind if the indexes fail to break-through the 50-day resistance the swing lower to test support again could be very punishing on any new entries.  Plan your risk carefully.

Trade Wisely,

Doug