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Symetrical Triangle Violated Intraday

In an earlier post, I showed you the triangle pattern that had formed in the market since the November low. I told according to studies, 75% of the time the pattern precedes a strong move in the chart in the primary trend (in the case of the S&P 500, that is down) but 25% of the time the chart shows a reversal into a new primary trend.

I speculated that the US stimulus bill accompanied by the China stimulus bill that was enacted in November and which is already showing positive results, would likely be enough to reverse sentiment to positive. That positive sentiment change would then initiate the reversal and move the index up toward the 200-day moving average.

Well, the markets are giving a big thumbs down to our stimulus plan. They just do not see enough stimulus in the plan to justify the cost is my guess. What that has caused is a break to the downside below the lower trend line. That is not good, however it does not mean that the triangle is out of play.

I wrote that we'd want to see the market close above the upper trend line for three consecutive days before it confirmed that this is a valid reversal. The same thing applies here – we'd need to see the market close below the lower trend line to know that a resumption of the previous pattern has emerged. It is not time to panic – no technical indicator is perfect – but we will be watching the action in the market for more clues.

The good news (and biggest clue) is that we have moved back above the lower trend line and we simply have an intraday violation of the pattern. Not the best news, but for an investor buying today can produce significantly positive results if the trend reversal comes about. The chart above is the 60 second chart of the S&P 500 and shows you the last 24 hours of trading. We opened down big as investors voted "No" on the stimulus plan, but we have moved back above 822 (that is the level of the lower trend line).

A fascinating battle…

Mark