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Symmetrical Triangle In GPI

02/26/07 12:17:05 PM
by Chaitali Mohile

Group I Automotive Inc. has been moving in a symmetrical triangle since May 2006. Which direction is it likely to break out?

Security:   GPI
Position:   N/A

In Figure 1, Group I Automotive (GIP) is forming a symmetrical triangle. The trendlines are likely to converge more, so the formation is not completed. The volume is reducing as the triangle narrows. Before the formation, GPI had a 30-point rally. Here, the symmetrical triangle is a mostly continuation pattern, but traders should watch for a breakout direction.

The relative strength index (RSI)(14) is also moving in a symmetrical triangle. This indicator has formed lower highs, but the 50 level indicated bullish strength. And even though higher lows were made, no fresh buying opportunity was possible. This tight range reduces the interest of traders. The average directional index (ADX)(14) has declined from overheated level to 13. As the triangle moves in narrow range, +DI and -DI is also moving in a very narrow pace, indicating a tough fight between buyers and sellers. But since the ADX hasn't moved below 10, it indicates a developing bullish trend after the decline.

In this situation, I will not be calculating the target, since the triangle is likely to narrow further. The high-volume breakout is again important

FIGURE 1: GIP, WEEKLY. The stock is likely to move in a further narrow range as the symmetrical triangle matures. Breakout direction should be watched carefully.
Graphic provided by:
Hence, I would request traders to watch a confirmed breakout before going in for any trade. On a breakout, traders can consider the width of triangle as ($62-$44) $18 to reach the target level.

Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.

Company: Independent
Address: C1/3 Parth Indraprasth Towers. Vastrapur
Ahmedabad, Guj 380015
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Date: 02/27/07Rank: 4Comment: 

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