Broadening formations - heightened disagreement
Broadening formations are generally bearish for most long-term investors and trend traders since they are characterized by rising volatility without a clear move in a single direction ---- investopedia.com/terms/b/broadeningformation.asp
Broadening formations occur when a market is experiencing heightened disagreement among investors over the appropriate price of a security over a short period of time. Buyers become increasingly willing to buy at higher prices, while sellers find ever more motivation to take profits. This creates a series of higher interim peaks in price and lower interim lows. When connecting these highs and lows, the trend lines form a widening pattern that looks like a megaphone or reverse symmetrical triangle.
The price may reflect the random disagreement between investors, or it may reflect a more fundamental factor. For example, many countries experience broadening formations due to heightened political risk ahead of an upcoming election. Different polling results or candidate policies may cause a market to become very bullish at some points and very bearish at other points. Broadening formations may also occur during earnings season when companies may report differing quarterly financial results that can cause bouts of optimism or pessimism.
These formations are relatively rare during normal market conditions over the long-term, since most markets tend to trend in one direction or another over time. For example, the S&P 500 has consistently moved higher over the long-term, therefore the formations are more common at times when market participants have begun to process a series of unsettling news topics. Topics such as geopolitical conflict or a change of direction in Fed policy, or especially a combination of the two, are likely to coincide with such formations.
Broadening formations ARE GENERALLY BEARISH for most long-term investors and trend traders since they are characterized by rising volatility without a clear move in a single direction.
Broadening formations occur when a market is experiencing heightened disagreement among investors over the appropriate price of a security over a short period of time. Buyers become increasingly willing to buy at higher prices, while sellers find ever more motivation to take profits. This creates a series of higher interim peaks in price and lower interim lows. When connecting these highs and lows, the trend lines form a widening pattern that looks like a megaphone or reverse symmetrical triangle.
The price may reflect the random disagreement between investors, or it may reflect a more fundamental factor. For example, many countries experience broadening formations due to heightened political risk ahead of an upcoming election. Different polling results or candidate policies may cause a market to become very bullish at some points and very bearish at other points. Broadening formations may also occur during earnings season when companies may report differing quarterly financial results that can cause bouts of optimism or pessimism.
These formations are relatively rare during normal market conditions over the long-term, since most markets tend to trend in one direction or another over time. For example, the S&P 500 has consistently moved higher over the long-term, therefore the formations are more common at times when market participants have begun to process a series of unsettling news topics. Topics such as geopolitical conflict or a change of direction in Fed policy, or especially a combination of the two, are likely to coincide with such formations.
Broadening formations ARE GENERALLY BEARISH for most long-term investors and trend traders since they are characterized by rising volatility without a clear move in a single direction.
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