By: Evan Lazarus
On a blog post dated June 29, 2010 titled What if it’s not a head and shoulder’s? I speculated that this whole market pattern would not play itself out as a classic head and shoulders pattern yet something completely different but with a very similar result nevertheless (see bottom chart). As the market continues to knock the crap out of both perma-bulls and perma-bears looking for continuous market direction we can see that this pattern is doing its job and doing it well.
At that time, most market technicians had done their job by citing what looked to be a massive reversal pattern with major support at/near the 1040 level. The markets of course eliminated that support only to rally back to 1100+/-.
This post is not meant to talk about what was but rather what may lie ahead as now this market has done its job of confusing just about all market participants. Should we be looking long? Is this the area to be thinking short again? Now what?
I again, want to refer back to the original pattern cited to update where we stand within this pattern now. While the market has been choppy to say the least, I think this pattern is a reflection of chaos and will continue to be chaotic until its not. While the day to day ebbs and flows are challenging to the active intraday participants, we need to respect what this pattern may be telling us. As of now, the 1100-1110 zone to me represents the area that the market will face the most challenge and the area that needs to be respected the most. Going back over the last few months you can see this time and time again.
Until things start to make sense for more than 1 day at a time, respect the levels, the pattern and of course the volatility.
Good trading.
