By: Scott Redler
The last two times the head & shoulders pattern triggered they turned into bear killers. The patterns triggered and then within a few sessions, reversed to trap shorts and give quick traders a nice tradable move to the upside. Will this time be different? It feels like technicians are embarrassed to mention this pattern now, because it’s been so unsuccessful, and that’s why it might work this time around.
Regardless, my community is in macro cash or hedged since the recent uptrend broke on August 11th when the S&P broke 1105. Now, we are trying to figure out how to maneuver this market as we head into the Fall. Yesterday the market gave back all of Friday’s gains and gave us clues to stay short or sell longs if we were looking for follow-through from Friday’s reversal.
If we can get a daily close below 1039-1041, I can easily see a retest of the 1010 area. If the economic reports due this week miss the way they have been lately, and the head & shoulders ignites with or without volume, the measured move of the right shoulder takes us down to 940-960 on the S&P.
If the U.S Economy continues down this path of little or no private sector growth, nearly 10% unemployment (or an even higher rate of underemployment), there is no wealth creation, and the continued overdose of government control continues, I see no reason why we can’t see the measured move from the head to neckline which would take this market down to the 870-890 area.
As professional traders we will trade both long and short and measure the complexion of the market at every significant level. But as an investor I’d be careful with your cash and only take compelling set-ups if you’re going to trail it the right way. Most stocks, even the strongest, look technically broken.
I attached the chart from August 11th and also today’s chart with the potential head and shoulders pattern.
