A couple of technical charts, and some thoughts.
Now the thing with “triangles” is this: the mid-triangle breaks, up or down, are “usually” the stronger moves. When the break comes at the apex, the move is “usually” weaker, or, a fakeout move. This pearl of knowledge comes from a variety of technical authors on the subject of triangles, particularly these non-specific triangles.
There are two reasons why I think the breakout will be higher. First of all, technical analysis isn’t cut and dry. Often times, we see temporary penetration of boundaries before prices officially resolve themselves towards the opposite direction. In this case, we saw a brief breakdown of support last week before quickly recovering. This is a sign to me of positive things to come.
Agreed, technicals, particularly in this event led market, is simply a risk management tool for short/intermediate term trades. It most certainly is not a prognosticator with any reliable outcomes. Simply, choose a position, long/short, and be prepared to change your mind if it becomes necessary.
And secondly, I’ve been watching the leaders of this bull market that began off those October lows last year – the Small-Caps. Look at a similar chart of the small-cap russell2000 already breaking out above the declining trendlines from the spring highs. More clues of higher S&P500 prices:
Who leads whom? Are small caps breaking out in leadership style, as the author suggests? Or, are they breaking out in anticipation? Who really knows. I certainly wouldn’t become wed to either idea, either could be right or wrong. Once again, simply use the data as a risk management device to take a position.
Is the economy fixed? Not even close. Does that mean stock markets will decline? No. Markets will fluctuate for all manner of reasons, even more so, and violently in bear markets, which, we are likely still in. The breakout higher could eventuate, and/or breakdown, no-one will really know until after the fact.
Take a longer time frame to place positions. It reduces the risk assumed, allows greater space and time for making decisions, especially if there is no requirement to trade the short time frames.