Market Update: May 28, 2009

Stocks posted another day of solid gains.  All major indices rose over 1% on higher volume.  However the SPY remains in its trading range that was established on May 4th.  The SPY, our proxy for the S&P 500 has been trading between 93 and 88.75 for the last three weeks.  It did close above its 20-day moving average.  Still the long-term trend remains bearish based on the weekly charts while the short-term trend is range-bound.  The one thing to take away from the daily chart, is the recent triangle pattern which can help time your entries and choose the right direction as the markets come out of its trading range.

Short-Term Trend

The recent consolidation that began in early May has formed a symmetrical triangle pattern.  Generally, a symmetrical triangle is a continuation pattern.  Simply put, its a period of consolidation prior to restarting the previous trend.  As the recent short-term trend has been bullish, one would expect to see a breakout to the upside and a continuation of the short-term bullish trend.  However, this does not always come to fruition.  A symmetrical triangle can also break in the opposite direction of the recent trend.  This, will mark the beginning of a new trend.

Therefore, the best approach is to wait.  Look for a breakout and play the market in that direction.

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