Friday, November 6, 2009

Potential Fly in Bull Ointment: Early Stage Head and Shoulders Formation

Many things we are seeing now on the charts are similar to what was happening mid summer.  Many of us (hand raised) were excited about a potential "head and shoulders" formation that was in process of being created.  (what the heck is a head and shoulders? see here) Literally we were a handful of S&P points away from this formation completing but on a fateful Monday Meredith Whitney upgraded Goldman Sachs (GS), the next day Intel (INTC) reported and bears were steam rolled as we went on a 3 month rally.

In the past week we've once again broken below that 50 day moving average, which *should* have been bearish... on top of that have been 5 (6?) intraday reversals which *should* have been bearish.  But the "urgent buyer" reappeared this week [Jan 9, 2008: An Amazing Blunt Commentary on the Plunge Protection Team] [Jun 29, 2009: Larry Levin - the Visible and Invisible Hand is Everywhere]... he who buys ahead of Fed meetings with no qualms... he who buys ahead of labor reports with no qualms... he whose name I believe rhymes with US waxpayer (allegedly) has always been there to save the day.   Hey at least in "transparent" China they admit it...[Jun 29, 2009: China Business News - $170B of Bank Loans Funneled into Stock Market]

Either way we are at a similar crossroads now... it really is not "safe" to be a bull until we begin making new highs again north of S&P 1100.  And it appears there is never a safe moment to be a bear as these +2% days come out of the blue at just about every technically important juncture. Here we thought the bears were back in business just a week ago to the day but 4 days of rallying took care of that issue.

As I look at this S&P 500 chart we have the "potential" for another head and shoulders formation similar to July forming, with the right shoulder in process.  If that is the case, things should get ugly in the weeks to come.  It's far too early to tell and the formation would not really complete until we break down 50 some S&P points.  We'll take it day by day... but as we noted yesterday this very abnormal market is making a lot of veterans scratch their heads.   Louise Yamada, a very highly rated technical analyst, a was on Fast Money last night and said as much...

So as we said entering the week, we'd be mostly on the sidelines since this is a tricky place where violent reactions to news events could be the order of the day.  So far so good, but we still have very little clarity go forward until we break "out" or "down".  There are weeks the market is relatively easy to figure, and weeks there are no clear advantages, and for now we are in the latter. A coin flip from here.

Disclaimer: The opinions listed on this blog are for educational purpose only. You should do your own research before making any decisions.
This blog, its affiliates, partners or authors are not responsible or liable for any misstatements and/or losses you might sustain from the content provided.

Copyright @2012