Home > Stock Market Analysis > Megaphone Pattern: Volatility ahead

Megaphone Pattern: Volatility ahead

A rare megaphone pattern is setting up in the S&P 500 Chart.  When stock prices make higher highs and lower lows, it generally signals that there is a great deal of uncertainty (and subsequent volatility) in the markets.  You usually want to look for a breach of the widening trend lines for a indicator for longer term direction.

S&P 500 30 min Chart, freestockcharts.com

S&P 500 30 min Chart, freestockcharts.com

The austerity crisis has been temporarily averted, and, as expected, the markets reacted accordingly by breaking through previous levels of resistance.

S&P 500 Daily Chart, freestockcharts.com

S&P 500 Daily Chart, freestockcharts.com

January saw multi-year highs being made and is currently at levels not seen since 2007 (!).   With all this seemingly good news with the Dow breaching 13,000, there have obviously been numerous headlines exclaiming now is the time to jump back into the markets.  Indeed, January saw a large influx of funds from retail investors.  Unfortunately, I just can’t see how it’s a good time to jump back into the market.

For the bulls, we’ll need to see a breach of resistance at $1514.96 to see highers highs be made since we failed to make higher highs on 2/5.  Just keep in mind to protect gains in case of a break of support at around $1493 means, which means we’re heading down for a retracement.

It should be noted that all transactions described on this blog were performed on the Investopedia Stock Simulator and not in the real stock market.  I have no actual positions in any stocks mentioned nor will I be initiating any actual positions in the next 6 months.  Furthermore, the information on this blog should not be considered financial advice.  The main purpose of the blog is to educate its readership, myself included, about concepts and ideas that were previously unknown to me.

Categories: Stock Market Analysis
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