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BERMUDA TRIANGLE - WALL STREET STYLE

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We've seen this all before.  The sure-fire short setups get waxed as trendline support holds.  Then the bulls grow confident as the market soars only to get turned back by trendline resistance.  The cycle continues to repeat itself until we get resolution.  If you time your entries perfectly, the triangle formations can be powerful trading patterns, but patience and extreme discipline is required.

Right now, the market is faced with exactly that triangle mentality.  The triangle keeps squeezing with each high moving lower and every low moving higher.  At some point, something must give.  That time is quickly approaching.  The breaking of the triangle pattern doesn't necessarily dictate whether the bear market ends.  In fact, I would argue it doesn't matter at all.  It does matter whether the bulls can turn the recent upside action into something longer lasting, however.

Let's take a look at the unfolding triangles, first on the S&P 500:

S&P 500 2.7.09

Next, the NASDAQ:

NASDAQ 2.7.09

There is one difference on the buying this time - it's the volume that's accompanying the move higher.  Any time we can get the price movement and volume confirmation, it's much more bullish.  We haven't broken resistance though.  Until we do, the volume is not as meaningful.  Whether we see enough bullishness to crack through triangle resistance is a story for next week.
 
The odds of reaching that first Fibonacci retracement (38.2%) area increases greatly if the major indices can break their current triangle patterns with heavy volume.  That's what I'll be looking for as next week unfolds.  Also, financials helped to spark the turnaround on Thursday morning and the rally has continued in that space since.  If and when that rally ends, it will likely signal the end to the overall market rally as well.
 
Happy trading!
Tom Bowley
About the author: is the Chief Market Strategist of EarningsBeats.com, a company providing a research and educational platform for both investment professionals and individual investors. Tom writes a comprehensive Daily Market Report (DMR), providing guidance to EB.com members every day that the stock market is open. Tom has contributed technical expertise here at StockCharts.com since 2006 and has a fundamental background in public accounting as well, blending a unique skill set to approach the U.S. stock market. Learn More
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