The Fizzle Pattern

On November 17th, I posted this XLF triangle chart (click to enlarge):

How did it turn out? Here is what it looks like now:

The XLF didn’t hit either my upper, or lower target. It just sort of drifted out, but notice that the upper triangle line has become a downtrend line. The pattern is now starting to look like a bearish descending triangle.

Watching the triangle play out, I thought: “traders have just lost interest in the financials and are off playing gold or something.” And now, it looks like traders have lost interest in the entire market. Will the SPX follow the XLF pattern and fizzle out too?

Here is what the textbook has to say about prices drifting out the apex of a triangle (page 103):

“If prices continue to move “sideways” in narrower and narrower fluctuations from day to day after the three quarter mark is passed, they are quite apt to keep right on to the apex and beyond in a dull drift or ripple which leaves the chart analyst completely at sea. The best thing to do in such cases is go away and look for something more promising elsewhere in your chart book.”

The SPX is not in a triangle pattern, but the XLF has lead the rally since the March low and might be giving us a clue as to what the SPX might do.

This entry was posted on Thursday, December 17th, 2009 at 12:24 am and is filed under Investing. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.