June 15, 2009: The Dow e-mini futures is forming a symmetrical triangle which is usually a continuation pattern. Will we see a rally to 9000?

Over the past few days the Dow E-Mini (Symbol: YM) has been forming a symmetrical triangle and a measured move out of the formation reaches nice targets. Nearly 75% of the time a symmetrical triangle is a continuation pattern, which means the Dow can head higher. However, there is a 25% chance that prices can head lower. We'd ideally wait for a break out of the triangle and play the measured move.

Click the link below to view the chart. The symmetrical triangle and the measured moves are shown by pink lines.   The measured move shows how far the prices can move after the breakout from the triangle. The target of the measured move is arrived at by measuring the widest distance of the symmetrical triangle, which is then applied to the breakout point. Since the breakout has not yet occurred, the measured move on the chart is an estimate. 

The breakout should ideally occur about 1/2 to 3/4 distance into the symmetrical triangle. The YM is more than 1/2 way into the triangle. Wait for the daily candle to close outside the triangle to confirm a breakout. Note that a break too close to the apex of the triangle may be insignificant. A break to the upside is usually with high volume, but a break  to the downside need not have high volume. Currently, the volume on YM is declining, which happens when prices are forming a symmetrical triangle. 

The measured move on the upside take can YM to the level of resistance marked on the charts. Resistance levels usually act as magnets pulling prices up to it. We'd ideally take some profits at the 8961 level and let the rest run to the 9099 level. If we have a downside break, the measured move can take YM to 8313, which is right in the congestion area. Congestion areas act as support. If YM falls below the congestion area at 8200 level  it can reach the next area of congestion. On the upside a breakout of 9099 can take YM to the next level of resistance.

Caveats

Technical patterns can fail and prices may sometimes not make the measured move. We always have stops in place to prevent huge losses or lock in profits.

Chart Analysis

Symmetrical triangle on Dow futures