The triangle resolved

Two days ago I wrote about the symmetrical triangle pattern we were seeing:

 "These triangle patterns are like springs that get compressed more and more as the days go by.  When they pop, they can go big."

Well this one blew up today, big time.  Unfortunately, it went in the opposite direction I thought it would. I knew that these patterns tend to exit in the same direction as they entered. My mistake was in assuming the entry was from the longer term uptrend you can follow from the left edge of this daily Dow chart. However, the triangle wasn't really fully established until March 3rd, and a triangle there comes in from below.

So anyway, the triangle is now resolved and we have now broken below the center of the ascending regression trend channel that goes back to last June (though we still have not broken below it yet, even after today's horrible 228 point dive).

I'm showing the weekly chart here so you can see for yourself. The current situation has happened twice since last June. Once in the first three weeks of last November and before that in the middle of last August. And the distance between each of these was about the same amount of time: 10 weeks from August to November and then 12 weeks from November to the present.

The look of this pattern, plus the look of the weekly stochastic suggests to me that this is not in fact the start of the next Great Depression. That said, I'm not looking for much improvement tomorrow. The futures are all down at ;east half a percent again this evening (1:30 AM EST) and there's more bad economic news out of China, this time about inflation (though it's not clear to me how much one can trust anything the Chinese say). Also, the last two times we broke under the center of the long term RTC, it took about a week to recover.

And even though the VIX finally moved out of the center of its recent range today, it still has more room to go higher tomorrow. It closed at 21.88 today and the upper Bollinger band is at 23.17. The only thing in the way is its 200 day MA at 21.92. That might be key, since five of the last six times the VIX approached the 200 MA from below, it was rejected. The one exception was last May when the whole PIGS/the world is ending thing broke.

If the VIX cannot advance tomorrow, that would suggest that any further market declines will be limited. On the other hand, we did break the 12K support level and the S&P broke it 1300 support today. However, the point we closed at today, 11,985 is in fact another support level from the last week of January. Also, note that we are now further from the daily pivot (at 12,209) than we've been at any time since last December 1st. And we also hit the lower Bollinger band in the Dow today too

However, I'm still not going to put up the red swing trend arrow because even a massive one day drop does not constitute a trend, and the action up til now was anything but a trend. I even tried fitting a regression to the recent action but the Pearson coefficient was too low to be meaningful.

I will say that I just hate this sort of market. 90% of the carnage was over in the first two minutes of trading this morning. And even as of late last night it wasn't at all clear that we were in for this so there was no real way to prepare for it. I though we might go lower, but like the Spanish Inquisition, I wasn't expecting this. I simply don't know how to make money in an environment like this. My only consolation at this point is that I have a lot of cash on the sidelines and I'm ready to go shopping when the all-clear sounds.


Bottom line, look for a small range day tomorrow with limited downside. Watch what the VIX does around that 200 MA - that will be the key to tomorrow.