No sooner had I said that the market was resilient and wasn’t worrying about the debt ceiling impasse that it tanked hard on heavy volume due to fears things wouldn’t get resolved. That is the nature of the market: things don’t matter until they do. It’s unpredictable and acts like a little kid, but it has been like that since the beginning, so we must get used to it.
The Chart
That being said, let’s see where we stand with regards to the technical picture of the S&P 500. For those with experience looking at charts, an ominous formation should pop right off the page: the dread “head and shoulders” pattern. The left shoulder occurs in mid-February, the head at the beginning of May, and the right shoulder has now formed in mid-to-late July.
We seem to be right at the neckline area, which is the area of huge support. The theory states that as long as the neckline is not violated, then the market is ok, but that looks quite ominous right now. There is further support around the 200-day moving average at 1283, and then the double-bottom at about 1260. This is the good news for the bulls as there are multiple support lines, but yesterday’s plunge on big volume has the bulls playing with fire.
Whipsawed
This is a difficult market to trade right now as every day there seems to be a triple-digit Dow move depending on what the headlines are, and more importantly, what traders are focusing on. The short-term trend seems to change by the day, as various support and resistance levels are constantly being sliced through. I continue to maintain that the market looks a bit precarious here due to the head and shoulders pattern.
I would recommend caution for traders and to use stop losses liberally. This might cause you to get whipsawed a lot, but that is better than the alternative of a substantial capital loss. There is no shame in stepping back to clear your mind and let things play out as well. It will help you to keep your emotions in check. Whatever the case, get ready for some action.
Getting Technical: S&P At Critical Juncture is an article from: 
