Triangle Patterns (Feb. 12, 2015)

Two major stock indices have classic descending triangles that began in December and likely ended earlier this month. First, here’s the NASDAQ-100 (NDX):

NDX triangle

The NDX has decisively broken out above the upper trendline which is a very bullish signal for the coming months. After an upside breakout, the next major top tends to occur near the point where the trendlines converge. In this case, that suggests a rally until late-August.

The Dow Jones Transportation Average (DJ-20) has the same triangle pattern:
Dow20 Triangle

The trendlines for the Transports predict a significant top in early September.

You may remember an earlier projection I had for a major top in May based on the Dow Industrials’ Three Peaks Domed House:

Dow tpdh 2015 updated

I arrived at May by counting 7 months from Point 10. Normally, the 7 months is counted from Point 14, but I thought this instance had omitted Point 14 due to the height of the rally off the October 2014 lows. However, if the stock market is going to rally until the late-summer as the triangles suggest, then the recent low on the Dow could be point 14. Counting 7 months from February puts us in September, the same month that the triangles’ trendlines converge. We will likely see Dow 20,000 headlines by the end of the summer.

Another interesting observation is that the 2nd half of this year is when the Federal Reserve is expected to tighten interest rates. Everyone seems to think higher interest rates will cause stocks to go down. I have some doubts about this correlation (short-term volatility aside), but, technical patterns suggest that the market could be in an overbought and vulnerable position this fall, so news shocks could suspend the bull market for a while.