Jul 08 2009
Whither the S&P Head-And-Shoulders?
The head-and-shoulders pattern on the S&P 500 daily chart has become a major talking point of late. By any way you’d care to define it, the neckline appears to be getting broken today. That being the case, I figured I take a look to see what the implications were. On the chart below I have drawn two lines – one the neckline (parallel from the low after the first shoulder), and the other the projection point taken by doing a measured move from the neckline by the same distance as the neck to top of the head measurement.
The projection point comes in a bit below 805, so we’re looking at a nearly a 10% drop from current levels. That’s meaningful.
In case there was any doubt about this being a negative development, make note of the lower Advance/Decline line. it’s made a new lower low after having done a lower high. You’ll recall my earlier post on the divergence that set up this roll over. The A/D line is confirming the price action, so we’re not getting any sign that we should be looking for a bottom any time soon. Of course the market could rally at any point. From here, though, I’m going to favor shorting into upside moves rather than trying to play the long side.
Here are some other posts which might interest you:
- My first actual book royalty payment!
- Divergences Gave An Early Warning in Stocks
- Guaging the prospects for a range break
- Gold Looks Like It Should be Finding Support Soon
- Gold Looks A Couple Weeks Away From A Big Move