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Symmetrical Triangle In Light Crude

05/02/07 11:55:01 AM
by Chaitali Mohile

$WTIC has formed a symmetrical triangle on the daily chart. The breakout direction will strengthen the rally.

Security:   $WTIC
Position:   N/A

In early April 2007, the 200-day moving average (MA) resistance was crossed with a gap up, confirming the bullish strength in the rally. But the following bullish rally was unable to break through the previous high and corrected. The price then established support on 200-day MA and moved up. If the trendline is drawn with last few days' move of $WTIC, the symmetrical triangle can be seen. The price consolidates within the triangle, indicating a continuous pattern of the symmetrical triangle. The symmetrical triangle is quite different from an ascending/descending triangle. The breakout direction of the symmetrical triangle is not known.

FIGURE 1: $WTIC, DAILY. The symmetrical triangle is forming yet to complete, so a trade in anticipation of a breakout should be avoided.
Graphic provided by: StockCharts.com.
 
The moving average convergence/divergence (MACD)(12,26,9) is moving close to its trigger line. This shows the volatility in the price movement and the indecision of the MACD crossover. The stochastic (10,7,3) is above 50. This level is "no man's land," so it is again directionless. Both the indicators and symmetrical triangle, which has yet to complete, suggests staying on the sidelines of this stock.

FIGURE 2: $WTIC, WEEKLY. The price is facing a retracement level and a 50-day moving average resistance.
Graphic provided by: StockCharts.com.
 
Figure 2, the weekly chart, shows the stock has faced a serious correction of about 32 points, and the undergoing rally is a pullback rally. The price is consolidating between 38.2% and 50% of the retracement level. In addition, the 50-day moving average is resistance for the bullish rally. The stochastic (10,7,3) is overbought and can move flat at this level. This indicates an upside rally may continue, but the breakout of the range-bound move is important as well. The MACD (12,26,9) is positive and moving above its zero line too.

So Figure 2 shows positive sign of a bullish pullback rally, but the symmetrical triangle breakouts, if upside, will add strength to this pullback rally. As a consequence, traders may want to avoid a trade in $WTIC till the breakout is confirmed.



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
E-mail address: chaitalimohile@yahoo.co.in

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Date: 05/03/07Rank: 4Comment: 
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