DAX Index
The S&P500 index has already recovered all of yesterday’s loss on the back of a strong bounce from dynamic support. It appears that the market formed a contracting triangle and yesterday’s move lower was the last leg that pierced its lower edge.
A symmetrical triangle during a rising market acts as a continuation pattern. As such, traders should watch for a confirmation of the pattern, keeping an eye on the key 4,200 level.
The move lower in the stock market was triggered by comments from the US Treasury Secretary that the Fed will not hesitate to normalize policy should inflation rise faster than expected. At that point, the stock market indices fell, but higher inflation also means higher asset prices. Therefore, we could also build a bullish argument on the same rampant inflation scenario.
A symmetrical triangle suggests more continuation in the direction of the underlying trend. In this case, the trend is bullish as the stock market rises since the COVID-19 dip in 2020.
As such, investors may want to wait for a break and close above 4,200 points before going long. The stop-loss of the bullish trade should be at 4,125, and a risk-reward ratio of 1:3 should be enough to set the proper take-profit level.
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