• Chartist Corner: Is A Scary Pattern Forming On The SPX?

    by  • April 23, 2013 6:30 am • Broad Market Analysis, Chartist Corner, Quick Hits • 4 Comments

    The SPX could be in the process of making a Head and Shoulders peak.  This is a bearish pattern and one that many technicians say could lead to much lower prices should it happen.

    As you can see below, it is trying to form a right shoulder right now.  Should the shares bounce a little more, then break beneath its neckline, it could signal a big drop is coming.  Going from the head near 1597, to the neckline down near 1538, this comes out to 59 points.  So a break of the neckline would suggest a target move down of 59 points to 1479.  From last night’s close this is about 5.3% lower.

    One thing we’ve noticed over the years is how quickly the crowd (or media) are to pick up the bearish chart formations.  On the other hand, nearly totally ignore the bullish formations.  Back in 2010, there was a very well broadcast bearish head and shoulders pattern that nailed the lows for the year in 2010.  So by no means do these always work.

    Anecdotally, we find it extremely bullish that only the bearish technical patterns seem to get picked up.  While bullish patterns are nearly totally ignored.  The SPX formed a nice inverted head and shoulders pattern late last year and no one talked about it.  Instead, all we heard or read about was how bad Fiscal Cliff was going to be for everyone.  Yeah, maybe not.

    Now this time we have talk of a bearish pattern before it is even completed!  Now the current pattern very well could play out perfectly for the bears, but be listening closely to how many are talking about it.  If nearly everyone sees it, I do think that negates how effective it might be.

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    4 Responses to Chartist Corner: Is A Scary Pattern Forming On The SPX?

    1. Fact Finder
      April 25, 2013 5:15 pm at 5:15 pm

      Strangely enough I have never seen a bearish H&S play out. On the contrary bearish retail traders jump the gun and end up creating short squeezes.

    2. alexander1618
      April 24, 2013 1:19 pm at 1:19 pm

      actually it’s been playing into the uptrend channel since mid November and currently seems to continue it’s course.

      • April 25, 2013 2:05 pm at 2:05 pm

        Agree. The path is higher until proven otherwise. All the talk of the bearish pattern is bullish.

        • alexander1618
          April 25, 2013 2:35 pm at 2:35 pm

          You know what else Ryan? I zoomed out of the daily chart and on to the monthly chart and i also noticed a very nice uptrend channel. If you connect the pivot low from march 2007 and onward to the next higher pivot low of October 2011 and create a parallel line to form the channel you can see the current price is within reach of the upper channel signaling that a reversal or correction is looming. Coincidentally, May is just around the corner. The past 2 years May has been bearish months(hence the saying sell in May and go away). The bigger question is going to be is the correction a minor reversal within the channel or a major a-b-c correction.

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