The pronounced upward movement beforehand and strong positive sentiment causes the index to spike higher ‘pole’ and the price action has now converted itself in symmetrical triangle and consolidation form with defined support and resistance lines; hence, the Bullish Pennant.
The buyers were driving the market upward until the present back off and profit taking; until the retracement by the seller to cool of the trend. This tag of war between the supply and demand is yet another reason to force the index to consolidate for a while. But the buyers will ultimately triumph and as a general rule the price will become bullish.
The formation of Bullish pennant is also visible from the shrinking volume of the relevant period. The break-out will see the spike in volume.
The trend line has confined its retracement to perfect level of Fib 38.23% which is textbook characteristic of pennants. There are two main methods to choose from here. 1. The first is simply to wait until the market breaks above its line of resistance. 2. The second is to use the general rule of thumb that markets will often revert briefly before a full breakout begins. In these cases, the previous support turns into resistance – and resistance into support.
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