Bearish Ascending Wedge

An ascending wedge pattern forms when the top of a rising trend channel converges toward the rising trend line that forms the bottom of the channel. It is considered to be bearish because, rain or shine, the price line almost always breaks down through the rising trend line. It is one of the most reliably bearish patterns I know of.

As you can see, there is a clear ascending wedge that has formed on the S&P 500 daily chart, and a price breakdown is virtually guaranteed to occur in a matter of days, if not hours. HOWEVER, "virtually guaranteed" is not the same as 100% guaranteed -- I have seen ascending wedges that resolved to the up side.

Another thing to consider is that, if a break down does take place, the duration and amplitude will probably be short term in nature, because the entire formation only covers about a two-month time span, and it is more shallow than steep. More important is the fact that the medium-term market behavior has been clearly bullish.

Bottom Line: The ascending wedge pattern on the S&P 500 chart is a failry reliable signal that a short correction is due at any time. While it will make the bears happy at first, I don't think the correction will last more than a few days.

 

Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics and strategy if conditions change.

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BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder ofDecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.