Index Option Trader

SPY Symmetrical Triangle

It has come to my attention that the SPY has formed a textbook symmetrical triangle lately. This type of continuation pattern, shown below, is classic before a break in either direction.

With SPY trading below both its moving averages, the amount of bearish sentiment among investors, and tons of upside resistance, one would think that SPY will be headed lower. If SPY pierces either the up trend line of the triangle pattern, look for SPY to head higher, but be aware of the major resistance at the 144-146 levels as we are still in a confirmed downtrend. If SPY pierces the lower trendline of the triangle pattern, look for the SPY to head considerably lower and a retest of the lows around 127. As a fan of contrarian signals somewhat, I think that SPY will pierce the upper trend line and head a bit higher here as it is the move that hardly anyone is expecting. We shall see in the coming weeks.

As a side note, Bill, over at Vix and More, has posted an article entitled “The VIX, VXV and Volatility Expectations” which is a great resource. You can view the entry here:

http://vixandmore.blogspot.com/2008/02/vix-vxv-and-volatility-expectations.html