Head and Shoulders Action Almost Perfect

Last Thursday I had mentioned we had a high probability of a head and shoulders formation forming on the S&P 500. I said

On the S&P 500 we have a potential head and shoulders formation being created with the right shoulder forming now (technical goobly glock) - this would be broken if - again - we can break back north of S&P 940s area. S&P 915-925 would be where I'd expect the market to fill in the right shoulder and then from there we wait to see what happens next.

This is what the chart looked like then

I had tagged S&P 915-925 as the "right shoulder" - we closed Monday at 927, and briefly traded up Tuesday morning but if we don't get over S&P 930 ... I'll consider it close enough for government work.

This is what it looked like Tuesday:

For those not familiar with technical analysis, this is a negative outlook in the intermediate term, marking a general exhaustion of buyers and a pending reversal. Once the "neck" is broken you tend to have some very hefty selloffs.

If indeed the squiggly line analysis is correct, S&P 880 is the line in the sand bulls will want to hold on any major pullback - where we broke out from in April and multiple tests of it in May.

Comments

[basehitz:]

Economic data, and in particular the jobs data this week is my primary focus. If another bad report comes out (adjusting for B/D manipulation and other tricks), this could break down. If it passes that test, earnings/warning season starts shortly thereafter. Seems too much to ask for given the excessive debt levels and dependency on the printing press to solve our problems.

And being a skeptic, I am greatly encouraged in my position because Dennis Kneale declared the recession is over.
www.cnbc.com/id/158402...

I nominate him for head buffoon. Given the competition at Cheerleading Central, that distinction is not easy to earn.

Jul 01 08:45 AM

[ain't no fo...:]

These SharpCharts usually don't link over here, but if it does happen to work, it shows an identical pattern on the Dow:

stockcharts.com/h-sc/ui?s=$INDU&p=D&yr=...

Note the MACD and Sto are both weakening and we tagged the 50 day EMA just under 8400 yesterday afternoon before bouncing. The 50 is one of the last lines of support.

Tyler Durden had an intriguing piece last night about what happened the last time Consumer Confidence lagged the SPX price by as much as it does now - as he said, "things got real bad, real fast." From these much lower levels I don't know if it could really tank the market that bad again, just depends on how much buy program activity the administration's proxies GS and JPM have left... methinks they have a LOT of fresh green rectangular pieces of paper compliments of Timmy and Benjie.

zerohedge.blogspot.com...

Dennis Kneel is a disgrace, a buffoon, a no-nothing fool in my opinion. How he got that job, even on that pathetic excuse of a news station, is so far beyond logic that it just confounds me. If possible, it says less about him than it does about the "talent" scouts and producers of CNBC, and it says a heck of a lot about the guy in charge of that whole company who has sent GE swirling down the crapper in world record time. Head Buffoon? right on.

Jul 01 09:15 AM

[ain't no fo...:]

Sorry, for whatever reason S.A. WILL NOT let commenters post SharpCharts on this site thru the normal "linkable version" link process.

Jul 01 09:17 AM

[Tomcat101:]

Charts looking sort of flat to me rather than any sort of prounounced head and shoulder formation...

In 2003 we had a big spring pop, then traded flat for several moths before moving higher. I'm leaning toward that scenario but remain cautious.

I'm sure everyone was waiting for the big correction in 2003 also.

Jul 01 10:16 AM

[Larry House:]

Dennis Kneale is such a joke. The chart pattern you highlight seems reasonable to me. Time will tell. I think the market may have a last gasp higher before it begins to die. It will be an interesting summer.

Jul 01 11:16 AM

[Mayer Amsch...:]

Yeah, I enjoy the banter of some of the CNBC talking heads, but Dennis Kneale is a tool who knows nothing and I can't stand watching.
Now that Erin Burnett, on the other hand...

Jul 01 12:20 PM

[Tomcat101:]

I like Betty Liu on Bloomberg. Doesn't matter what she's saying or whether or not she knows what she's talking about. Just fun to watch.


On Jul 01 12:20 PM Mayer Amschel Rothschild wrote:

> Yeah, I enjoy the banter of some of the CNBC talking heads, but Dennis
> Kneale is a tool who knows nothing and I can't stand watching.<br/>Now
> that Erin Burnett, on the other hand...

Jul 01 04:16 PM

[friar tuck:]

i agree, no wonder GE stock is in the tank. i guess for the right money you can get anybody to go on the air and make a jack ass out of themselves. what i can't understand is, how these people on cnbc think they are relevant. i watch it on mute.

Jul 02 09:17 AM

[ain't no fo...:]

Mute for me too... the only one worth listening to there is Faber, and I have no doubt that after his book gains some traction he will be heading out for more enlightening environments.


On Jul 02 09:17 AM friar tuck wrote:

> i agree, no wonder GE stock is in the tank. i guess for the right
> money you can get anybody to go on the air and make a jack ass out
> of themselves. what i can't understand is, how these people on cnbc
> think they are relevant. i watch it on mute.

Jul 02 09:50 AM

[TraderMark:]

Please keep my comment stream Dennis Kneale free ;) thank you

Jul 02 12:12 PM

[Graham and ...:]

GE ought to dump NBC. But the stock will suffer until they do.

Jul 02 12:16 PM

[ain't no fo...:]

Well, we're VERY close to a breakdown out of the right shoulders on the SPX and INDU today. Also, they're trying to break down through the inverted (basis the 200's) 50 day EMA's and that is a key technical support level.

So, let's see how aggressive JPM and GS get with their buy programs this afternoon... stick save again, or breakdown?


On Jul 02 12:12 PM TraderMark wrote:

> Please keep my comment stream Dennis Kneale free ;) thank you

Jul 02 12:20 PM

[Steak:]

I've been looking at past crashes for historical corrolaries, just to try and get a framework to think about the price action in markets.

I was looking mainly at the Nikkei and Artentine tests of their 200DMA after their respective stock crashes. It was looking like we were going to do a Japanese Roll where we'd hug the 200DMA as it slid down.

However if we do really get a head and shoulders action we would start to look more like the rollover after the post crash bounce in 1930. If we follow that historical pattern we'd see about 840 on the S&P before a reversal higher. Food for thought ya know

Jul 02 01:40 PM

[Northstar10000:]

Oh, please foolish ones give me one more up move next week so I can get my short position in place. Please Please

Jul 03 05:09 PM

[Jugheadjack:]

The head idiot on CNBC is supply sider Larry Kudlow. Reagan and his policies are responsible for starting it all.

Jul 04 07:15 PM