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SYMMETRICAL TRIANGLE


Microsoft Makes Two Big Breaks

08/25/03 10:25:03 AM
by Arthur Hill

A symmetrical triangle breakout on the weekly chart and falling wedge breakout on the daily chart point to higher prices for Microsoft.

Security:   MSFT
Position:   Buy

Figure 1: Weekly chart of Microsoft.
Graphic provided by: MetaStock.
 
On the weekly chart, MSFT declined to 20.7 in July and formed a small double bottom of sorts with another low around 21.55 in October. The advance to 29.15 broke double bottom resistance (black arrow), but the stock failed to hold this gain and returned to the low 20s. A series of higher lows and lower highs evolved and the stock traced out a symmetrical triangle (magenta trendlines). Each trendline has been touched three times and this increases the pattern's robustness.

These patterns are also known as coils and represent tightening consolidations. The upside breakout resolves the pattern, signals a victory by the bulls and higher prices are expected over the next few weeks. Based on traditional technical analysis, the advance is projected to around 34. The width of the symmetrical triangle is added to the breakout point for a projection (29.15 - 21.85 = 7.3, 26 + 7.3 = 33.3). Another method is to draw an upper trendline parallel the lower trendline. This trendline extends to around 33 and confirms the target area.


Figure 2: Daily chart of Microsoft.

On the daily chart, MSFT formed a falling wedge and broke trendline resistance with expanding volume (green arrow). The move occurred with a long white candlestick and signals a continuation of the prior advance (23.59 to 27.8). Using the "measured bull move" technique, the advance is targeted to around 30 (27.8 - 24.6 = 4.2, 25.5 + 4.2 = 29.7).

At the very least, the high volume advance solidifies support at 25.5, which extends from the symmetrical triangle breakout on the weekly chart (resistance-turned-support). No matter how you slice it, MSFT appears headed higher over the next few weeks.




Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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Date: 09/13/03Rank: 4Comment: 
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