Tuesday, February 10, 2009
Stock Market (S&P 500) Breakout Soon! We are near end of Symmetric Triangle
The Stock Market, as represented by the S&P 500 ($SPX), is very near the end of a symmetrical triangle (see chart above).
The Market has gone back and forth inside of this triangle, and the market is consolidating the move from the all time highs. The end of the triangle converges in March, and because there is often a breakout around 1/2 to 3/4s of the pattern, it is about time the market breaks out.
According to Stockcharts.com and Edwards and Magee, "roughly 75% of symmetrical triangles are continuation patterns and the rest mark reversals." Since the previous trend from the all time highs was down, the continuation means further downside.
Previously, this blog analyzed the potential depth of the decline, and we estimated that the downside target is 600 on the S&P 500, a drop of around 27% from here (S&P 500 value of 827). This matches another analysis by this blog which suggested that the long term S&P 500 bottom is from 450 to 600.
Today's S&P 500 Chart