Here is the thesis...
1) A decline is underway and is expected...
2) We have a valid H&S bottom that measures to 1230...
3) We had a failed head and shoulders top - highlighted in first rectangle...
4) It looks like we are repeating that pattern now...
5) We may hold 1020 and then continue higher for another leg up, like we did when the other h&s failed...
6) That would allow the 1230 target to be met and also allow for the over bullishness that could generate a real decline...
Apart From the Crowd - 10-30-09
That's a pretty sketchy right shoulder off the bottom not to mention the volume failure. Edwards and Magee might take issue.
ReplyDeleteInterestingly however your the 1230 target happens to be around a .618 retracement level at 1228. Breaking 1120ish would project that price.
Yeah the right shoulder is not so well formed, however, the last 100 or so S&P points makes me think this pattern is irregular but valid...
ReplyDeleteThe 1230 target is reinforced by the 200 week SMA that is around that level which should be overhead resistance, as well as the neckline of the original H&S top from which the market broke down...
Edwards and Magee would probably take issue, but they are dead, so we don't have to worry about them...
david, it is a stretch to believe that not only a pattern will work but will work perfectly (by what natural law?)...many patterns imagined by mcgee often breakdown or do not reach their target, a matter conveniently dismissed by followers of the trade...
ReplyDelete@Anon,
ReplyDeleteits true... the pattern may reach its target or it may not... once the pattern completes and is valid, i.e. a head an shoulders, I assign a greater possibility that the pattern will reach its target, until I see evidence that it won't. Here, that means not buying unless we get over 1100 or selling unless we get under 1020 on S&P...
nothing is guaranteed or foolproof...
The weekly chart inside your report has a better defined shoulder.
ReplyDeleteThey may be dead but they still wrote the best book in my view that everyone likes to skip over.
@ pat
ReplyDeleteIt is a wonderful seminal book, which I have read. I was kidding about not having to worry about them What do you think about head and shoulders continuation patterns?
I think they were/are very predictive if they are not too large--daily and weekly only. One of the keys is volume, it has to be right and on this formation it is lacking to a large extent during the breakout. I used the term "were" because Edwards and Magee had a major revival in the late 70's early 80's during the prior commodity bull market--principally in gold/silver and with the new futures contracts, Bonds and later the S&P. This unleashed a hunt for the very predictable head and shoulders formation. They were everywhere! Once that happens, I find the predictive value declines.
ReplyDeleteTo this day I still put a lot of confidence in Fib retracements. I wait for them. We both have the same max upside target by different methods. When I was a Broker/trader I combined, Fib, Gann fib lines, sentiment, Edwards and Magee, RSI, MACD, M.A's. and Stochastics. The key for me was manually updating my charts everyday. You start to really feel the OHLC/tape. Computers run the risk of taking away a feel for the tape.
It is for some of those reasons I eyeball all your charts.
very very nice article: it is well written, in order. finally laid everything on the shelves.
ReplyDeleteThanks a lot for your articles. You save money for other people! You have a talent!
ReplyDelete