Good day all,
Looks like the last few triangles posted here have worked well. Yangzijiang continued on to the target, and the USDSGD pair is trading lower. Today, I have another triangle to show you all. M1 has broken out of a descending triangle. Looking at price and volume alone, this triangle is just about picture perfect. M1 retraced from highs of $2.68 to make lower highs. At the same time, though, M1 found support at about $2.36 to $2.40. Volume behaviour is fantastic. In fact, I have not seen such volume accompanying a triangle pattern in a long time. Volume decreases as the triangle takes shape, and on breakout days, it surges above the 30-day volume MA. Honestly, volume there could have been better, nevertheless it is still acceptable. So, these all point to an upward breakout from a descending triangle.
M1 rallied up to $2.56 before dropping straight back down to the $2.42 region. If I were long M1, this would be very disappointing. So how do I see such patterns in light of a breakout that looks invalid? Considering how M1 is still above the triangle support at $2.40, the case for upside is still valid. But, if M1 falls below the support, things could look nasty. What we would be looking at from a technical standpoint is a busted descending triangle. What we should expect from that is downside; and by taking the height of the triangle for projection, we are looking $2.10 – $2.15 for M1. I have not had much experience in busted triangles, since they do not happen many times (and thank goodness for that, if not we can start looking at all triangles as busted ones), so I will just monitor M1′s price action and regard it as an observation.
Looking at indicators, during the breakout period, quite a number of indicators showed bearish divergance indications. While M1 rallied to $2.56, indicators did not make higher highs. So, with hindsight, we can say that the indicators did not like M1′s breakout towards the upside. With that, let’s continue watching M1 and see if a new surge appears, or a busted/invalid triangle prevail.
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