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Market Due for a Pull Back? The Head & Shoulders Pattern has been Revealed

|Includes:DIA, IWM, IWN, QQQ, SPDR S&P 500 Trust ETF (SPY), TLT

To finish this short trading week the indices finished the day lower. This sell off was sparked after a dismal jobs report. The Dow Jones Industrial Average finished lower by 223.32 points, S&P 500 lower by 26.91 points, and the NASDAQ lower by 49.20 points.

Looking at the charts we can see a bearish pattern has formed, the head and shoulders pattern. The chart below of the S&P SPDR (NYSEARCA:SPY) is marked up to illustrate this pattern.

(click to enlarge)

Click to enlarge

A bullish sign would be an uptrend pattern which is higher highs and higher lows. However as you can see after the market peaked in early June (black line labeled top of head) and a bounce off resistance in later June (black line labeled bottom of right shoulder), we did not set new highs before selling off or forming the second (right) shoulder. A critical point to hold above is 89 on the SPY. If we can hold above 89, and eventually break above the 93 range on the SPY, I think we have a shot at testing the highs of 96 and eventually moving higher. However, if we break below 89 on the SPY, I believe the S&P will be in a downtrend until 85 on the SPY (850 range on the S&P 500).

The only silver lining from Thursday's sell off was that the volume was on the lighter side.

Disclosure: No Positions

Stocks: SPY, DIA, QQQ, IWN, IWM, TLT