by Chart School - July 14th, 2009 9:36 pm
Hi All - we’re going to be posting exciting articles on charting and technical analysis here with Dave Fry’s nightly updates. Please check this section frequently and let us know what you think! - Ilene
Courtesy of Tim Knight at Slope of Hope
I’m hearing a lot of folks toss a phrase around attributed to Joe Granville: "If it’s obvious, it’s obviously wrong!"
Ummm, I’m not sure how many of you have data on Mr. Granville’s performance, but Mark Hulbert noted that The Granville Market Letter "is at the bottom of the Hulbert Financial Digest’s rankings for performance over the past 25 years - having produced average losses of more than 20 percent per year on an annualized basis." So I wouldn’t go tattooing everything he says on your forehead or anything.
The "obvious" thing these days is the head and shoulders pattern on the S&P. I admit, this thing has been exasperating. Before the market opened on Monday, it seemed ready to fulfill its destiny, but then Ms. Whitney decided to show up.
The above is the /ES, which incorporates the after-hours surge credited to INTC’s earnings release. We’re at a dangerous zone here. A cross above 928.25 on the /ES would put the final nail in the coffin on this pattern. But until then, I urge you remember a lesson from BRCM in 2000.
At the time, this stock also had a similarly exciting pattern.
Yet it wouldn’t seem to break 130 as it "should" have. One day it even went beneath 130 and then climbed right back up again. You can imagine how the bears were going insane with this stock as its freakish second right shoulder was formed.
The point I want to make is that sometimes these topping patterns take longer to play out than we would like. You have to just be patient sometimes. My point is better made with BRCM, though. I’ve tinted in the (now tiny) pattern which presaged what was to come.
Anyway, I had fallen back in love with the market, but the first couple of days of this week have turned me cold in a big, big hurry. It’ll be interesting to see how tomorrow stacks up when it’s finally over. As of this moment, it certainly looks like another slam-dunk for the bulls.
Tags: broadcom, Bulls, charts, Head and Shoulders, Stock Market
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by ilene - July 3rd, 2009 2:53 pm
Courtesy of Corey Rosenbloom at Afraid to Trade
It’s being broadly circulated around the analysis circles, but there appears to be a distinct Head and Shoulders forming on the daily chart of the S&P 500. I’m picking up volume and momentum divergences as well, hinting that lower prices are yet to come but let’s take a look at these structures and what they might mean for traders.
With today’s 3% free-fall (Trend Day Down) in the broader stock market, it appears now that the dominant technical pattern is the developing Head and Shoulders on the S&P 500.
It’s not guaranteed, of course, but according to classical technical analysis patterns, we would expect the next move in price to be a ‘magnet trade’ down to test key support about the 885 level in the index.
This support is strongly established as the February highs along with the May lows. This level also forms the “Neckline” of the expected reversal pattern.
A break (and clean close) below 880 could trigger a flood of short-sell orders (and stop-losses from buyers) which could create a ’self-fulfilling prophecy’ as traders and investors push price lower.
The classic measuring move is the distance from the Head to the Neckline (about 75 points) which is subtracted from the neckline at 885 to give us a target from 800 to 810 for the next level of possible pattern support.
Take a look at Volume, which has been steadily trailing lower as price has creeped its way higher. That serves as a non-confirmation of higher prices and hints at an impending reversal.
Finally, look at the 3/10 Momentum Oscillator - as price has been inching higher, the 3/10 Oscillator has been making lower highs along with price, and has even set-up the dreaded “Three Push” reversal pattern (a triple negative momentum divergence, which you see if you look closely).
As a caveat, there’s no guarantee price has to break these levels, and one astute reader (Michael) even noted in the comments of the prior post, because the Head and Shoulders pattern is so obvious, it might be ‘faded’ or fail to materialize because so many people are watching it. No one said trading had to be easy!
Until we see something different, this is the current price structure of the S&P 500 as we head into the holiday weekend.
Corey Rosenbloom, CMT
…
Tags: Divergences, Head and Shoulders, S&P 500, SPX
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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