After yesterday’s TREND DAY, the expectation was for consolidation, and that is what we got during the first four hours. The early range was just over four points, with the first surge being lead by the Russell 2000. And when it found there were no followers, it came back down.

Sloppy Rectangle Breakout

When the first fifteen minutes looked stronger than expected, I took a quick look at some other indexes and they were lagging badly. That made the DIVERGENCE at (1) on the chart even more significant. Sure enough, the market dropped to the support of yesterday’s high (green line.)

Another slower rally took us back to the previous peak, but once again there was a divergence showing. (3) The market was setting up a trading range, and we came back down to point (4). After prices reversed again, you could draw the trendline structure of a rectangle (blue lines.) Only four points are required for a rectangle, although the pattern often bounces back and forth several more times before a breakout. Today four was enough.

The breakout seemed weak, as volume only picked up slightly, and that was confirmed when price came back inside the rectangle. But weak or not, the uptrend line from point (4) held, and price went on to fulfill the rectangle target, adding the height of the rectangle to the breakout point.

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