Short Term patterns on the S&P 500 and Stoxx 600 indexes.

Triangles are one of the most commons price patterns in Technical Analysis. A symmetrical triangle is formed by a series of price fluctuations, each of which is smaller than its predecessor: also the volume diminishes as the pattern is complete, and then rises as the price breakout. The future direction of the breakout can only be determined after the break has occurred (generally, but not always, most symmetrical triangles are a continuation pattern).

Looking to the chart of S&P500, we could see the potential formation of that pattern.  The price formed two lower highs (H1 and H2) and two higher lows (L1 and L2). The second low is a tricky point: yesterday’s closing price is above a congestion area, that if in the next days holds, could confirm the second higher low and the possibility that the level of the price could at least reach and test the upper trend line of the triangle.

An interesting situation is that the L2 point corresponds to Monday, the beginning of the week, where prices closed below the 200 days moving average. But there was a strong reaction over the following days that pushed the price level well above the 200 days moving average. A good closing this weekend, will give us more indications of the strength of buyers in this phase of the market.

Also the Stoxx 600, on short term basis, is building a constructive situation. We have a divergence with the oscillator (2) and the price is forming a falling wedge (1), that generally is a reversal pattern. But the relative strength  vs. the MSCI World Index, even if rising, has not yet reached the down trend line (3), and therefore the scenario may still be premature.

Mario Valentino GUFFANTI
CFTe – SAMT Vice President – Swiss Italian Chapter – mario.guffanti@samt-org.ch

Disclaimer: the above article is for general information and educational purposes only.  It is not intended to be investment advice.  Seek a duly licensed professional for investment advice.