Last Monday, during our graduates monthly workshop, we did some research on the STI and made a startling discovery.
A common chart pattern has been brewing for the past 5 years, and judging by the massive scale of the pattern, it could lead to some major movements in the market once the patterns breaks out.
What is this pattern?
“The rising wedge pattern is characterized by a chart pattern which forms when the market makes higher highs and higher lows with a contracting range. When this pattern is found in an uptrend, it is considered a reversal pattern, as the contraction of the range indicates that the uptrend is losing strength. When this pattern is found in a downtrend, it is considered a bearish pattern, as the market range becomes narrower into the correction, indicating that the correction is losing strength, and that the resumption of the downtrend is in the making.
In a rising wedge, both boundary lines slant up from left to right. Although both lines point in the same direction, the lower line rises at a steeper angle then the upper one. Prices usually decline after breaking through the lower boundary line. As far as volumes are concerned, they keep on declining with each new price advance or wave up, indicating that the demand is weakening at the higher price level.” – Wikipedia
Where will the STI be going from here?
I will be waiting for it to hit the lower line, then watch to see if price manages to break that level. If it does, then we are in for a big ride down. If it does not, then it could be the buying opportunity for a last leg up.