Triangle Measure and 61.8% Retracement

Last week, Carl wrote a blog post on the triangle pattern that formed after the large October rally. As he mentioned, this is usually a continuation pattern. However, traders would have been wise to wait for the upside breakout, because the pattern broke to the downside. I marked the triangle with the red and white lines in the chart below, and you can see the price breaking the white line to the downside last week. This has led to a vicious decline over the last few trading days and we now stand at a key inflection point.

When the triangle breaks, an estimated price move can be obtained by subtracting the low from the high of the triangle, and then subtracting the result from the break level. For this triangle that would be 1235-(1290-1220). This gives us an initial price target of 1165, which is the low for today (although the day is not over). Additionally, this level is the 61.8% retracement of the October rally, which I circled in green. So the S&P 500 is testing a good support level right now, and if this does not hold, it's very likely the 1100-1120 lows for the year will not be far behind.