Ascending Wedge Formation Analysis

In the post bear market rally that began March 2009, major US market stock indexes have been rising in the pattern of ascending wedge formations.  A couple of wedges with less bullishly tilted angle can be drawn to confine variance stage of bullish runs of three major indexes.  For S&P 500, tipping point of past wedges have been reached, however, NASDAQ and DJIA failed to reach tipping points of past wedges.  This suggests that S&P will likely reach 1300 tipping point of the current wedge. 

S&P 500

NASDAQ

Dow Jones Industrial Average

2010/4/27 Update

Since the post was initially put up  on 4/21, the market went up a little, S&P 500 touched 1219.8 then broke down ~2.3% on 4/27, on the same day, VIX spiked 30%.  With the upper edge of this formation confirmed, if the lower edge holds, the apex tip of the rising wedge is a little bit over 1300 around September time frame.   Whether the lower edge will hold depends on where this correction will end.  One sign that this is a correction instead of THE top is that PPO on weekly chart is showing higher high.  

S&P 500's rising wedge formation as of 4/29

 

S&P 500 Chart with Bollinger Band

Here is an updated chart of NASDAQ's rising wedge formation (as of 4/29)

One interesting note about NASDAQ is if you look at the weekly chart with Bollinger Band overlay, Bollinger Band's parameters are 20,2, you will see that index has gone over-extended in a similar fashion as it did back in mid-September 2009.  At that time, it took 1.5 months for the index to trade sideways to allow Bollinger Band to catch up before it resume uptrend to gain around 300 points.  With the rally target around 2800, around 300 points away from current level, I expect either the index to trade sideways for 1.5 months or retrace at least 5% back to median of Bollinger Band before it resumes final rally to 2800.

Here is an updated chart of DJIA's rising wedge formation (as of 4/29)

DJIA chart with Bollinger Band