Let's try to recreate it. We've followed the formation of a triangle over the last few blog posts, with a potential break to the upside that fizzled out, followed by a potential break to the downside. Keep in mind that there's more room to fall on this chart than there is to rise.
Thing is, after the price dropped down below the support line, the bulls tried to push it back up into the triangle and failed. On the 24th, the day's trading formed a small red candle with a long downward tail, which shows a lot of buying pressure remaining in this market — the bears drove the price down to the low, but they couldn't hold it there to the close. The bulls were able to force the price higher, but they couldn't get it back between the triangle's converging support and resistance lines.
The bulls were able to score a green candlestick on Friday. But a closer look at the chart shows that they basically tested the triangle's lower support line but were unable to break upwards through it. See the price turn, just below the slanting line? That reinforced the line's strength and turned it from a lower support line to an upper resistance line. And today's trading… well, the DJIA lost over three hundred points. The bears are officially out of the triangle.
Selling pressure today dipped the price briefly below 16,000, but couldn't hold it there. That's now the support line to beat. Below that is the previous support at 15,675, where the potential Fibonacci retracement turned higher. Should 15,675 break, the target would be 14,675, completing the Fibonacci retracement.
Another potential outcome would be for the price to stagnate between the current or the lower support line and the resistance line for the original triangle. Tomorrow's trading (September 29) is going to be very interesting indeed, especially considering what's going on in Asia as I type (the Nikkei is down almost 500 points, the Hang Seng over 700). Again, full disclosure: I am not currently actively trading in any market. This is nothing but sidelines kibbitzing.
However, there are some fundamental issues that can impact the rest of the week's trading (and this is about the point where Weebly ate my first blog post). Corporate bond sales are suffering what the Wall Street Journal describes as "tumult," and Zero Hedge points out the decoupling of high yield bonds from equities markets, similar to what happened in 2007 and 2008. VIX has again risen above 27 and, oh, yes, the employment report releases Friday. Keep an eye on the workforce size, not the bottom line unemployment rate. Economists are forecasting the creation of 200,000 jobs. (Forgive me for not linking to the articles…)
Watch out for "unexpected" developments. Cheers,