A Bearish Case for Diageo: Breaking Critical Support LevelsThe descending triangle pattern on Diageo’s weekly chart presents a strong bearish signal, suggesting that the stock may be poised for a deeper decline. Historically, descending triangles indicate mounting selling pressure, and with price action nearing critical support levels, the risk of a breakdown is significantly high.
Currently, Diageo is approaching key lows last seen in 2020, around 2050, a level that previously acted as a strong support zone. However, the confluence of technical factors suggests this support may not hold:
1️⃣ Fibonacci Retracement Confluence – Just below 2050, the 2026 level aligns with a key long-term Fibonacci retracement. While this could act as a temporary support zone, the broader technical setup suggests further weakness.
2️⃣ The Psychological 2000 Level – Round numbers often serve as psychological barriers in the market, but with a descending triangle breakdown, this level may fail to provide meaningful support.
3️⃣ Measured Move Target: 1875 – When analysing the height of the descending triangle pattern, its projected move suggests a breakdown well beyond the above-mentioned support levels. A clean breach of 2050 could see a swift move lower, with 1885 emerging as the next major target.
With the weight of these technical indicators aligning, the path of least resistance appears to be downward. Unless Diageo finds an unexpected catalyst for recovery, breaking these key levels could trigger further selling momentum, forcing the stock into deeper correction territory. Traders and investors should approach this setup with caution, as the evidence strongly favours a bearish continuation. 🚨📉
N.B. Understanding the Descending Triangle Pattern
A descending triangle is a bearish chart pattern that forms when the price action is characterized by a series of lower highs converging towards a horizontal support level. This pattern signals increasing selling pressure, as buyers fail to push prices higher while sellers continuously drive prices downward.
Key Features of a Descending Triangle
1️⃣ Horizontal Support Line – The price consistently finds support at a particular level, creating a flat base.
2️⃣ Lower Highs – Price fails to reach previous highs, forming a descending trendline.
3️⃣ Breakout Expectation – A descending triangle typically breaks downward once sellers overwhelm buyers at the support level.
4️⃣ Volume Decline & Expansion – Volume usually declines as the pattern develops and increases significantly at the breakout.
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How to Measure the Descending Triangle
To predict a potential price target, traders measure the height of the triangle and project it downward from the breakout point.
✅ Step 1: Identify the Pattern
• Find the flat support level where price repeatedly bounces.
• Draw a descending trendline connecting the lower highs.
✅ Step 2: Measure the Height
• Take the distance from the highest point of the triangle (initial peak before lower highs start forming) to the horizontal support level.
• Example: If the high of the triangle is 2675 and the support level is 2275, the height is 400 points.
✅ Step 3: Project the Breakdown Target
• Once price breaks below the support level, subtract the measured height from the breakdown point.
• Example: If the breakdown occurs at 2275, then:
o 2275 - 400 = 1875 (expected price target).
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Confirming the Breakout
📉 Bearish Confirmation:
• A daily or weekly close below support, ideally with an increase in volume.
• Retests of the broken support level that now act as resistance.
⚠️ False Breakouts:
• Sometimes, price may briefly dip below support and reverse higher.
• Confirmation is key before entering trades based on the descending triangle pattern.
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Final Thoughts
A descending triangle is a powerful bearish signal, particularly when seen in downtrends. Traders use it to identify potential breakdown opportunities and set realistic price targets. Risk management is crucial, as false breakouts can occur, and waiting for confirmation increases the probability of a successful trade.
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