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TRIANGLES


Greenlight Capital Re Forms Triangles

02/20/13 09:43:58 AM
by Chaitali Mohile

One of the triangles formed by Greenlight Capital Re appears to be waiting for prices to breakout of it. Will the bullish breakout of the short-term triangle help the other to break upward?

Security:   GLRE
Position:   N/A

A short-term descending rally of Greenlight Capital Re (GLRE) formed a bottom by establishing support at 22 levels. Later, the stock moved horizontally in a narrow range, forming higher lows and marginally lower highs. This created a formation that resembles an ascending triangle. However, we will consider it to be a symmetrical triangle as it lacks the stable top (see upper trendline) in Figure 1. The pattern has already breached in an upward direction with very high volume. During the breakout, GLRE witnessed fresh buying pressure.

FIGURE 1: GLRE, DAILY. The bullish breakout rally has sustained above the 200-day MA support.
Graphic provided by: StockCharts.com.
 
Gradually, the new upward rally converted the 200-day moving average (MA) resistance to support and underwent a major breakout. An uptrend that was developed by the pattern breakout turned stronger as GLRE established MA support in Figure 1. The average directional index (ADX) (14) is indicating a well-developed uptrend and is likely to hit an overheated area. The relative strength index (RSI) (14) that ranged between 30 and 50 levels surged in a healthy overbought region. The moving average convergence/divergence (MACD) (12,26,9) is showing a bullish momentum. Thus, GLRE is likely to sustain above the newly formed 200-day MA support.

GLRE has formed a long-term symmetrical triangle on the weekly time frame chart in Figure 2. Earlier, the price rally tried to breach upward, but the lack of bullish strength forced the stock to remain range-bound. The ADX (14) was very weak with equal buying and selling pressure. The tangled positive (green) and negative (red) directional index of ADX reflects high volatility and consolidation mode of the price rally. The shaky MACD (12,26,9) and the ranged RSI (14) also showed uncertainty in GLRE. As a result, the stock continued to consolidate in the narrow trading range, forming the symmetrical triangle.

FIGURE 2: GLRE, WEEKLY. The price rally has reached the tricky support-resistance zone of the 50-day and 200-day MA.
Graphic provided by: StockCharts.com.
 
We are aware that this triangular pattern can breach in a bearish as well as bullish direction, so we must rely on the chart movement. Currently, the price rally of GLRE has moved closer to the upper trendline resistance. The strong white candles formed recently in Figure 2 show the bullish strength. Although the stock is struggling to sustain above the 50-day and 200-day MA support, a freshly developing uptrend would add confidence in the rally. In addition, the bullish crossover of the MACD (12,26,9) and surging RSI (14) is likely to extend bullish sentiments. However, the RSI has to violate resistance at 70 levels and sustain in an overbought zone.

Considering the current technical conditions in Figure 2 and the bullish breakout on the daily time frame chart in Figure 1, the long-term symmetrical triangle of GLRE is likely to breach in an upward direction. Still, we should watch for the confirmed indications from the chart.



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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