S&P 500 IndexUpdated Symmetrical Triangle Pattern in S&P 500 (SPX)
Above is a chart example of a triangle pattern that has formed in the most well known US index, the S&P 500. The trendlines converge and a breakout appears imminent.
Triangles develop as a consolidation and reversal formation where the price range narrows by two converging trendlines. There is usually a series of two or more price moves in both directions that progressively narrow. Stated differently, the converging trendlines trace a series of lower highs and higher lows.
Breakouts can occur to the upside or the downside with symmetrical triangles. But unexpected outcomes often occur. Some of the possible outcomes are as follows:
Here, the S&P 500 index has entered what appears to be a valid triangle pattern. Both upper and lower trendlines have been touched several times since January 4, 2022. Since the selloff in January 2022, the price range has contracted in a battle between sellers and buyers. Each rally and decline attracts fewer participants resulting in narrowing of the peaks and troughs.
Note that the lines could be redrawn slightly so that the breakout actually has begun, and some subjectivity always arises in applying chart patterns. But drawing the line more conservatively, meaning the pattern remains unconfirmed as to breakout direction, is prudent until a further decisive move.
Please note the measuring objectives in the text boxes above. The second measuring objective shown (using the maximum depth of the triangle as the distance to project from the breakout) is the preferred method.
Lastly, I should note that Martin Pring concludes that symmetrical triangles are one of the least reliable trading patterns. So perhaps when they appear, use them to identify consolidation that may precede a larger price swing. Then use other technical evidence to anticipate the direction in which that increase in volatility may go.
In which direction will S&P 500 break out? Since symmetrical triangles do not actually indicate the breakout direction until it occurs, other technical evidence helps. Note RSI on the daily chart, and the Chande momentum oscillator trending bearishly. And SPX just sliced through its 200-day SMA on Friday, Feb. 11, which suggests the breakout may be downward. But whipsaws can and do occur. Because price does not have to do anything based on anyone's analysis, remain open to the possibility of breakouts in either direction, false breakouts that reverse into the other direction, and breakouts that reverse and retrace only to then resume again. The upshot is that price has been contracting and is likely to start seeing a major price move.
Acknowledgments: Martin Pring, a renowned charting expert and pioneer in the field of technical analysis, discusses triangles in depth in his works. His works have provided a resource for this post and its discussion of triangle patterns and their breakouts and measuring objectives.
Triangles develop as a consolidation and reversal formation where the price range narrows by two converging trendlines. There is usually a series of two or more price moves in both directions that progressively narrow. Stated differently, the converging trendlines trace a series of lower highs and higher lows.
Breakouts can occur to the upside or the downside with symmetrical triangles. But unexpected outcomes often occur. Some of the possible outcomes are as follows:
- The triangle pattern works as expected, i.e., the breakout begins and price moves significantly in the direction of the breakout toward the price objective.
- The triangle pattern does not work as expected. This is called a triangle failure. In other words, a false breakout (whipsaw) occurs and price then reverses and breaks out in the opposite direction.
- The triangle pattern works as expected after a whipsaw and retracement, i.e., the breakout reverses, then price reverses yet again to move in the original breakout direction after the retracement.
Here, the S&P 500 index has entered what appears to be a valid triangle pattern. Both upper and lower trendlines have been touched several times since January 4, 2022. Since the selloff in January 2022, the price range has contracted in a battle between sellers and buyers. Each rally and decline attracts fewer participants resulting in narrowing of the peaks and troughs.
Note that the lines could be redrawn slightly so that the breakout actually has begun, and some subjectivity always arises in applying chart patterns. But drawing the line more conservatively, meaning the pattern remains unconfirmed as to breakout direction, is prudent until a further decisive move.
Please note the measuring objectives in the text boxes above. The second measuring objective shown (using the maximum depth of the triangle as the distance to project from the breakout) is the preferred method.
Lastly, I should note that Martin Pring concludes that symmetrical triangles are one of the least reliable trading patterns. So perhaps when they appear, use them to identify consolidation that may precede a larger price swing. Then use other technical evidence to anticipate the direction in which that increase in volatility may go.
In which direction will S&P 500 break out? Since symmetrical triangles do not actually indicate the breakout direction until it occurs, other technical evidence helps. Note RSI on the daily chart, and the Chande momentum oscillator trending bearishly. And SPX just sliced through its 200-day SMA on Friday, Feb. 11, which suggests the breakout may be downward. But whipsaws can and do occur. Because price does not have to do anything based on anyone's analysis, remain open to the possibility of breakouts in either direction, false breakouts that reverse into the other direction, and breakouts that reverse and retrace only to then resume again. The upshot is that price has been contracting and is likely to start seeing a major price move.
Acknowledgments: Martin Pring, a renowned charting expert and pioneer in the field of technical analysis, discusses triangles in depth in his works. His works have provided a resource for this post and its discussion of triangle patterns and their breakouts and measuring objectives.
Note
SPX saw a bit of a whipsaw on Feb. 14, 2022, with what appeared to be a downward breakout. Perhaps the triangle should have been extended further at the apex—when the triangle is extended, the highs and lows are still touching the converging lines (see below). So one might conclude this was not a breakout yet after all. Momentum remains weak, and today's rebound (Feb. 16) after a reversal didn't really pull momentum above the halfway line. In fact, momentum seems to be signaling that the latest rebound was even weaker than the prior bounces. Anything can happen in the markets, but a downward breakout still seems increasingly likely in the next few days. ( Perhaps another touch of the triangle's upper trendline will occur first though).Note
Yesterday and today, a breakout has occurred to the downside even using a somewhat expanded triangle that includes more price action from the last few days. I feel that my "max" downside price target of 3800 is too ambitious even though it works with the measuring objectives.Note
Note
Another bearish pattern has arisen in HACK, cybersecurity ETF. 
Note
And the downside breakout continues. But at this point, the major indexes are nearing exhaustion levels to the downside, so not ready to "load up" on long puts especially when many market participants already are, and when the VIX has spiked (though it could spike more as the war unfolds). With volatility so high, it makes sense to hedge with strategies that profit from high volatility falling in the coming days / weeks.Trade closed manually
Most short positions closed, other than hedges in case more downside happens in coming few days.Note
Just posted an update on SPX this evening to describe the technical levels I'm seeing going into the FOMC week. Have a great week everyone. 
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SquishTrade
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.