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SYMMETRICAL TRIANGLE


Thai SET Finally Gets Direction

01/09/06 08:39:17 AM
by Arthur Hill

After a two-year consolidation, the Thailand SET Index started the new year with a breakout to turn bullish.

Security:   $SETI
Position:   Buy

On the weekly chart (Figure 1), the Thai SET Index ($SETI) formed a large symmetrical triangle that extends back to January 2004. The index surged in 2003 and consolidated the next two years. The trendlines slowly converged as the consolidation coil tightened and the index broke above the upper trendline with a strong move in early January. It was like a spring being wound up and suddenly released. This advance also exceeded the September high and an uptrend has been reestablished.

FIGURE 1: $SETI, WEEKLY. The Thai SET Index formed a symmetrical triangle that extended back to January 2004.
Graphic provided by: MetaStock.
Graphic provided by: MS QuoteCenter.
 
In addition to the symmetrical triangle breakout on the price chart, two key directional indicators crossed paths. These indicators are part of the average directional movement index that was developed by J. Welles Wilder. They can be used on their own to establish a directional bias and the strength or weakness of that bias. On this example, plus directional movement (green, +DI) moved above minus directional movement (red, -DI) and broke out to its highest level since January 2004. This is the strongest advance in +DI in two years, further validating the breakout.

With a confirmed breakout present, it is time to establish an upside target and a downside reevaluation point or two. The width of the pattern can be added to the breakout for an initial upside target. In this case, the width is about 210 points and the upside target is to around 940. Broken resistance turns into support and I would set the first support level at 700. A move below this level would challenge the breakout and call for a reassessment. Key support is based on the December low and a move below 650 would be outright bearish.



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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