Most traders I know hate triangles. But one seems to be forming right now on the S&P 500.
The index is trying to hold 2643, about 7 points above its late-November low. And that, in turn was about 29 points above its October low.
While those lows have been getting higher, the highs have been getting lower. The S&P 500’s peak on Monday was about 15 points under its November 8 zenith. And that, in turn was about 1 point below the top on October 17.
Higher lows and lower highs — two lines converging in a sideways triangle. It’s not a directional triangle pointing up like we saw on Amgen (AMGN), or down, like we saw on energy and chips. The current pattern is purely sideways and reflects a period of general uncertainty.
It makes sense when you consider the backdrop of news. Economic data has weakened but is nowhere near recessionary. Interest rates seem to have peaked, and a lot of bad news has been priced into the market.
Does the Federal Reserve follow through on its recent rhetoric and turn dovish? Can the U.S. and China make progress on their trade spats? Will tomorrow’s non-farm payrolls report confirm the current “good but not great” economic backdrop?
No one knows the answer to those questions, which is why we’re squeezing into a range with higher lows and lower highs. As we said yesterday, triangles are frustrating and painful, but they happen.