Silly me for thinking that the range contraction on Monday and Tuesday might now lead to range expansion. This market is in no rush to go back to normal levels of volatility. Still, the moves weren’t as extreme as we saw earlier in the month both based on volume and percentage change. The S&P and Nasdaq both made new multi-year closing lows but did not violate the pattern of higher intraday lows they’ve made this month. So far each of these pushes lower has been less extreme than the prior one. That should give the bulls some hope that the current October intraday lows will hold.
As you see in the charts, one can still make a case for (somewhat) symmetrical triangles continuing to be built. Here are some notes on symmetrical triangles:
While there are instances when symmetrical triangles mark important trend reversals, they more often mark a continuation of the current trend. Regardless of the nature of the pattern, continuation or reversal, the direction of the next major move can only be determined after a valid breakout.
Edwards and Magee suggest that roughly 75% of symmetrical triangles are continuation patterns and the rest mark reversals. The reversal patterns can be especially difficult to analyze and often have false breakouts. Even so, we should not anticipate the direction of the breakout, but rather wait for it to happen. Further analysis should be applied to the breakout by looking for gaps, accelerated price movements, and volume for confirmation. Confirmation is especially important for upside breakouts.
Everything’s down again
|Trend||Nasdaq||S&P 500||Russell 2000|
(+) Indicates an upward reclassification today
(-) Indicates a downward reclassification today
Lat Indicates a Lateral trend
*** I’m simply using the indices’ relations to their 200, 50 and 10-day moving averages to tell me the long, intermediate and short-term trends, respectively.