Dictionary.com defines a wedge as a “piece of hard material with two principal faces meeting in a sharply acute angle, for raising, holding, or splitting objects by applying a pounding or driving force.”
A wedge is a simple machine. You can use it for gaining some height, driving a golf ball, or splitting logs.
Financial markets also have wedges. A stock market forms a wedge pattern by exhibiting a series of lower highs (the down slope that forms the top of the wedge) and higher lows (the upslope that forms the bottom of the wedge) over a period of time.
We believe the V and W patterns discussed in our February 14 blog are in the process of forming such a wedge pattern as illustrated in the graphic.
What will happen after this wedge?
Obviously, the future is completely unpredictable, but many wedge patterns in the past have ended with a significant market move either up or down as uncertain traders who had been sitting on the sidelines decide to buy or sell.
It is impossible to discern which direction the market will take when it completes a wedge. However, we believe this wedge indicates that there is the potential for some additional market volatility – either up or down — in the coming weeks if the wedge pattern is completed.
Our proprietary Market Mood Meter® indicates traders are currently Nervous – reflecting significant market uncertainty.
As always, we encourage you to stick with your thoughtfully prepared long-term investment plan through periods of market volatility – whether that volatility is driven by wedges or not.
Securities offered through LPL Financial. Member FINRA/SIPC. Financial advice offered through Investors Advisory Group, LLC, (IAG) a registered investment advisor and separate entity from LPL Financial.
Past performance is no guarantee of future performance. In fact, the opposite can be true. The information contained in this report does not purport to be a complete description of the securities, markets, or development referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.
Market Mood Meter© Trend strength is determined using S&P 500 Index daily moving averages (DMAs) (8-21, 13-34, 21-55, 34-89, 55-144 and 89-233) to determine whether the short-term DMA value is higher than the longer-term DMA value. A daily moving average is the average price of the index over the indicated number of days. Trend is either Positive (8 points) if the short-term DMA is higher, Negative (0 points) if the short-term DMA is lower or Transitioning (4 points). A trend is Transitioning if the difference between the shorter DMA and longer DMA is between -.34% and +.34% of the shorter DMA. Maximum is 48 points when all trends are Positive.
Market Mood Meter© Momentum strength is determined using the same S&P 500 Index DMAs to determine whether trends are getting stronger or weaker calculated by dividing the difference between the shorter DMA and longer DMA by the shorter DMA. Momentum must be directional – rising or falling -- for 5 consecutive trading days to be Gaining (8 points) or Losing (0 points), otherwise momentum is considered Transitioning (4 points). Maximum is 48 points when all momentum is Positive.
Any opinions are those of IAG and not necessarily those of LPL Financial. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein.