Technical Patterns: A Big Move Is Coming…

| December 22, 2011 | 0 Comments

US investors are going to get their holiday wishes filled after all… The Santa Claus rally has officially arrived!

US stocks are pushing dramatically higher in recent trading.  The Dow rose by a sweet 337 points on Tuesday and tacked on another 4 points yesterday.

That’s a cheery 2.8% pre-holiday surge in just two short trading days.

Not bad Santa- not bad at all…

Investors were getting worried jolly ole St. Nick wasn’t going to make an appearance this December.

After all, European debt news has trumped everything for months now. And that’s led most investors to believe Santa’s sleigh had been hijacked.

But as it turns out, Santa’s right on time…

According to our friends at Bespoke Investment Group, Santa usually arrives in mid-December to carry markets an average of 1.45% higher through year-end.  And he’s done it 70% of the time over the past 20 years.

If that’s not an accurate seasonal trend, I don’t know what is.

As nice as it is to see Santa, there’s something else developing…

Something big.

It’s a technical situation that could make this week’s Santa Claus rally look like a blip on the radar screen.

The Dow’s price action over the past few months is forming a very interesting pattern… a series of higher lows and lower highs.  Notice how the blue lines are converging to a common point.

This same highly charged pattern is developing in the S&P 500 and the Nasdaq.  Most technical analysts call it a triangle consolidation.  And it usually results in an explosive market move.

But the problem lies in figuring out the direction of the impending move.  Triangle patterns can be tough to trade since they don’t give us clues as to which way the market is going to break.

But that’s where I come in…

I’ve traded triangle patterns with great success for years.  And I’ll step out on a limb and say stocks are about to make a dramatic move higher.

Why?

Investors have been waiting for a solution to the European debt problem for over six months now.  Yet, we still don’t have a convincing fix for the problem.

But I think the markets are about to move higher… without a European solution.  As long as Europe doesn’t fall into anarchy, the markets will likely push this pesky issue to the back burner.

What will move to the front burner?

US economic fundamentals… which are getting better.

In fact, recent data suggests the US economy isn’t nearly as feeble as investors once thought.  November housing starts came in stronger than expected and manufacturing is picking up briskly in various regions.

But most importantly, jobless claims and unemployment are dropping. Those are all bullish fundamentals investors will have to start factoring in.

So what should you do?

Get your shopping list ready… but be patient.  Next week’s low volume, holiday shortened trading will likely be a little wild.

But when January rolls around, be ready to buy the stocks on your list.  If the Dow breaks above the upper blue line on the chart in a convincing fashion, join in on the fun.

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Category: Technical Analysis

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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