ThinkForex - Analytics


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    SP500: Potential broadening wedge below highs

    The pattern has not been confirmed but is one to keep an eye on to see if a tradable opportunity can be attained. If we do not trade the pattern, we can use the profit objective and suggested direction alongside lower timeframes for entry. 

    Had it not been for this analysis on AUDUSD then I may not have noted the potential bearish pattern forming below the all-time highs. The broadening wedge is not a pattern I tend to pick up on frequently and one I like to trade even less.

    As is the case with western patterns they always seem to leave room for another higher, low or swing whilst the pattern evolves, making timing and confirmation tricky and sometimes near-impossible. However, I tend not to trade the actual western pattern, instead opting for them to provide potential future direction and profit objectives, whilst using trend analysis and support/resistance to fine tune a patterns evolution.

    We have just seen ISM manufacturing expand (slightly) and, whilst the SP500 failed to act with any conviction in either direction, I'm making the assumption the markets are still digesting the data. Q2 data growth is likely to show an advance compared with Q1 and leading indicators, whilst not setting the world slight, do provide potential for some upside surprises along the way. This means SP500 could indeed retest and break to new highs and make a mockery of the bearish pattern, but on a near-term basis I do see potential for another leg higher within the wedge pattern. If we are to create a lower high (within the upper red line) then we can consider the pattern is beginning to mature and be on guard for a violent downside burst. Stock markets tend to plummet when a bearish pattern is confirmed so do keep this in your waitlists as it could provide a decent shorting opportunity (over a relatively quick timescale) if proven correct). 

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