Triangles: another illustration of the bulls versus the bears

When watching a triangle develop on a stock chart, it helps to imagine it as part of the ongoing struggle between the bulls and the bears:

•    The bulls drag the price higher, to the upper resistance boundary, but the bears defend the line and prevent them from breaking the price above that level.
•    The bears drag the price down, to the lower support boundary, but the bulls defend that line and so it’s not broken, either.

When examined from this perspective, it becomes easier to determine whether the buying pressure or the selling pressure is gaining the upper hand in this combat:
•    An ascending triangle develops with a horizontal upper boundary and a lower boundary that slopes up to the apex. This shows the bulls are holding their position, but the bears are weakening. Each time the bears drive prices down, it forms a higher low as their position erodes. In time, the bulls’ buying pressure overwhelms the bears’ selling pressure, and the price breaks above the resistance level.
•    A descending triangle is the opposite, forming with a horizontal lower boundary and an upper boundary that slopes down to the apex. In other words, the bears are holding their position but the bulls are weakening. Each time the bulls drive prices higher, it forms a lower high as their strength fades. Finally, the bears’ selling pressure overwhelms the bulls’ buying pressure, and the price breaks beneath the support level.
•    Symmetrical triangles remain the wild card. Here the resistance and support both slope to the apex, making it more difficult to determine whether the bulls or bears are winning the war. For this reason, many stock traders prefer to sit out symmetrical triangles and confine their trading setups to ascending or descending ones.

When last analysed, Monadelphous Group Limited (MND) was rolling in a range between strong support at 12.00 and a weaker resistance layer that extended to 15.00 or even 16.00, but with its strongest level at 14.00. The gap between 14.95 and 14.50 remains unfilled.

Rather than rolling all the way down to the support level on its last cycle, MND instead began consolidating within an ascending triangle buried inside the 12.00–14.00 trading range, as shown on the analysed chart, below:

MND continues to respect the upper resistance boundary at 14.00, and the few pops in volume it has seen since the first analysis have not been sufficient to drive it above that level. The stock  is currently turning slowly back down toward the new, bullish trendline.

Traders should watch for MND to drift down to the ascending triangle’s lower level as the price action is squeezed toward the apex. Hopefully in time it will pop above resistance at 14.00 and surge higher to fill in that gap.

technical analysis by Craig Liles