Stock Markets Are Preparing For An Explosive Breakout

Be prepared.  Something big is brewing up on the stock markets.  That is, the markets are getting prepared for an EXPLOSIVE breakout.

Let’s take a look at the Nasdaq.

Nasdaq 13.11.2011

The above chart shows that the Nasdaq has tested the 2420 region many times (once in the spring, twice in the summer, and twice in the last 2 months) only to fail to break out of that region. However, there is a chartist theory that the more a specific price level gets tested, the more likely it is that the markets will break past that level.

Let’s take a closer look at the Nasdaq.

Nasdaq 13.11.2011

The Nasdaq currently is in a sideways box pattern and we are 6 red dots in a squeeze. When a box pattern is formed, a break of the top of the box is a buy signal, and a break of the bottom is a short signal.

The squeeze signal is based on the idea that markets periodically shift from periods of low volatility to high volatility.  The indicator combines 3 indicators: bollinger bands, keltner channels and momentum.  When the dots are red it shows that volatility is brewing up, and when the red dots go to green the move is likely to be explosive and volatile.

Let’s look now at the S&P500 (below).

Nasdaq 13.11.2011

The triangular “megaphone” consolidation pattern (with squeeze below) on the S&Ps is indicative that a pretty volatile move on the markets is due. A break above 1275 is a long signal with a target at 1300. Conversely, a break below 1200 is a short.

Overall, the momentum behind this market is predominantly to the upside rather than the downside – despite the uncertainties in the overall Eurozone and the economy. However, I would prefer to be patient and wait for a breakout before I make a decision to buy or short.

One thing is for sure. These are very interesting times…


  1. Thank you so much for your posts, Alessio!
    I wonder how you would advise me to invest $10K or so (I live in NYC). Something safe. I’m a beginner and don’t know when to jump ship, so something I don’t have to babysit a lot. I have a Roth IRA and no other investments. THANK YOU!

  2. after a congestion best continuation signal of existend trend is a spring (market brakes below the congestion and rapidly fails ) this would be a rather safe entry signal long

  3. there is nothing safe. if u want make money be alert 24/7 otherwise u gonna lose it all soon or later. IHUB boards, twitter.

  4. Hey Maria, Thanks for your comment. Something safe? Now that is the 6 million dollar question. It depends what you mean by something safe. If you mean you do not want to lose anything at all, then stocks and commodities is not for you as they are always subject to risk and daily/weekly fluctuations. If that is the case you’re better off investing and holding Treasury bonds which have a guaranteed payout after a certain number of years. But that is not entirely great either because the interest you get paid on those are really nothing to brag about. However, if you can tolerate a certain degree of risk and potential that you could lose a percentage of your money (remember taking care of risk is more important than rewards) then we can look at stocks and commodities (like metals and Crude oil). At the moment I would say you can afford to wait a little as there is a tremendous amount of uncertainty around stocks. Gold and Silver may have some good long term prospects although I think they both have some shaking off to do. So the best advice is for the moment, your money is safer in a bank. We are going to do a webinar on long term trading too, so feel free to come to that.

  5. Hi Alessio,

    your megaphone is the wrong way round, it’s a contracting triangle by definition. If you were trading the graph right to left then is would be an expanding trianagle/”megaphone”
    I never trade breakouts, whats the win/loss ratio for the squeeze indicator?

  6. Great post, thank you !!!

  7. Maria, you can just make a safe deposit in Bulgarian banks. They offer around 7% annual interest rate at the moment. That’s good return and the risk is small

  8. so we like a people have money???/thu

  9. Urgghh, this is clearly a form of gambling. Some many maybes and ifs and mights dos and then people coming along saying the opposite is true. Money is safer in the bank indeed, though for sure, there it’s not even totally safe. The mind boggles at people gambling so much of their money on a market that is so clearly driving by psychology and moreso, mass hysteria.

  10. Thank you so much, dear soul!
    I’ll be sure to join the long-term trading webinar.

  11. A buy order at 2425 would be a good idea, with a stop loss slightly below 2400. As Alessio wrote, if there is a real break of resistance, it should be powerful.

  12. Well yes no duh John. This game is entrepeneural nouse who are prepared to take a little risk to get ahead. You’re clearly in the wrong place

  13. alessio hi …

    Figure interesting, but now the s & p has a moving average more important to monitor if there is a leak on the rise, watch out and as you say is better to wait on the sidelines (for bulls), the bears may take positions short with an eye on the 1275 as you say …
    there is an indication that I find very interesting and I trade with brokers no indicator continents, your partner Guy Cohen mentions in his videos and is the OVI ….. can you tell me that the continental shelf and OVI … THANK YOU forgive my English …. I’m from Spain

    Congratulations for your comments …. say one infinite truth

  14. Good thinking post. The super 12 committee will likely impact the markets in a bad way. It is too bad America is “hostage” to too dysfunctional politicians.

  15. Check out this video on YouTube:

    Looks like you got in there 🙂

  16. Dear Alessio, Even being in the world of money, you are a genereous person, you deserve my appreciation.

  17. Fina – thank you. The generous ones are people like yourself. Cheers.

  18. Alessio are you out of your mind breakout. This is the start of the Alessio Rastani prophecy. China is in stagflation, the Eurozone is all but over and the USA economy has stagflation.

    Bear Market time! No more Algos or rumors from papasmurf of greece can save them now!

  19. Thanks Diablo. By breakout I meant of course a breakout from the consolidation pattern that was forming on the major indexes. I tried my best to be neutral as to trade direction of the breakout. As it so happened it was a bearish breakout. I like that phrase – papasmurf. Good one.

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