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Aaron Basile
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Contrarian Investor, Commodities Speculator, Technical Trader.
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Aaron Basile
  • S&P Potential Head & Shoulders 3 comments
    Jun 12, 2011 4:10 PM | about stocks: SPY, DIA, QQQ, SQQQ, DXD, SDS
    aaronbasile.wordpress.com/2011/06/12/sp-potential-head-shoulders/

    A saw that few people pointed this out over the past week and though the right shoulder is weak, it’s still a legitimate pattern. For those who don’t know the math behind it, the neckline (1300) is subtracted from the peak of the head (1370). Then, the sum (70 points) is subtracted from the neckline (1300), some analysts use the breakout point instead, which in this case would be 1315. Regardless, the price target in this case is within 1230-1245. However, given the long term pivot of 1227 and the tendency that the market has to capitulate and overcorrect even after the bad news is out, it’s safe to say that based on this pattern, we’re likely to be headed for 1227 once again.

    There will be levels along the way, such as the 200 MA which will meet the YTD lows that are at 1260-1265. This is a significant level because it is the level that we opened at on the first day of 2011, and it is the level that we closed on when the market bottomed during the tragedy in Japan. This pivot can be played from the long side but ultimately I’ll remain short the market.

    Also, I would like to say that this particular pattern doesn’t mean much to me outside of added confirmation to what I have already been saying for the last two weeks. The reason I decided to post this was because I found it interesting and because I have heard others mentioning the potential for this head and shoulders top to play out. In any case, as I said before, I’m still short the market but am playing the long side for options expiration. After that, I’ll use the upcoming bounce as another shorting opportunity.

    Another interesting statistic that I did not include in my commentary last week is the S&P closed negative for six consecutive weeks with Friday’s close. The last time we had five AND six consectutive negative closes on the weekly chart of the S&P was the week of June 2nd, 2008 through July 14th, 2008. Again, we have not had five OR six negative weekly closes in a row in three years. The last time we did this for four consecutive weeks was Feb 9th, 2009 through March 2nd, 2009. This supports my prediction that we will have a bounce next week, but not a reversal as we have not had volume and price capitulation or a spike in the VIX yet.

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Comments (3)
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  • Justin M. Hall
    , contributor
    Comments (753) | Send Message
     
    Aaron, I hope all is well you!

     

    I am looking for SPY to potentially bounce at the $125 mark or 200 MA.

     

    Week June 13-17, 2011: Triple Witch Expiration
    I am looking for the broader market to stabilize on Monday. Selling should resume on Tuesday and continue into Wednesday. As with Monday, conditions should stabilize again on Thursday. We may even see a slight bounce. Don't be mislead. On Friday, I firmly believe that we'll see a strong sell off into options expiration.

     

    During the selling next week (June 13-17, 2011), I expect IBB (and possibly SPY) to test its 200 MA. 200 MA: IBB = $95 and as you know SPY = $125.

     

    Right now, I am playing the IBB puts. I prefer and own the $105s and $100s. I like the June, July and September expiration months.

     

    If interested, I am providing links to my two most recent articles on IBB and BIS below.

     

    May 26, 2011: seekingalpha.com/artic...

     

    June 6, 2011: seekingalpha.com/artic...

     

    Again, hope all is well with you. I'm sure you killed it with your play on SLV this spring. Good work, my friend.

     

    Justin M. Hall
    RxInvestors.com
    12 Jun 2011, 06:07 PM Reply Like
  • Aaron Basile
    , contributor
    Comments (92) | Send Message
     
    Author’s reply » I think we'll get some type of bounce but I'm not risking too much from the long side and I am mostly short. We're just really oversold going into options expiration and the institutions love to push the market in the opposite direction before options ex. In any case, the bears are in control and we're certainly headed for YTD lows within the couple of weeks.

     

    I made a good amount on the way up, the trick was getting out right before the landslide haha ;)
    13 Jun 2011, 10:01 AM Reply Like
  • karl_seeking
    , contributor
    Comments (64) | Send Message
     
    My friend also recently picked up on a head-and-shoulder pattern that may be developing. He noted the VT (world ETF) has an illustration of the H&S pattern that is fairly pronounced.

     

    Does today's gap-down my confirm the H&S pattern? Today's close will be interesting.... and so will be next week.
    8 Jul 2011, 11:08 AM Reply Like
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