Inverse Head and Shoulders in the SPY
We sure hope so. The only problem is it's such an obvious technical pattern that everyone is looking at. However, if we do see a breakout, the SPY could make it back to $140 in short order. Something to keep on your radar.
(Here is more information on the inverse head and shoulders, from stockcharts.com): The Head and Shoulders Bottom, sometimes referred to as an Inverse Head and Shoulders, is a pattern that shares many common characteristics with its comparable partner, but relies more heavily on volume patterns for confirmation.
As a major reversal pattern, the Head and Shoulders Bottom forms after a downtrend, and its completion marks a change in trend. The pattern contains three successive troughs with the middle trough (head) being the deepest and the two outside troughs (shoulders) being shallower. Ideally, the two shoulders would be equal in height and width. The reaction highs in the middle of the pattern can be connected to form resistance, or a neckline.
The price action forming both Head and Shoulders Top and Head and Shoulders Bottom patterns remains roughly the same, but reversed. The role of volume marks the biggest difference between the two. Generally speaking, volume plays a larger role in bottom formations than top formations. While an increase in volume on the neckline breakout for a Head and Shoulders Top is welcomed, it is absolutely required for a bottom.
Volume: While volume plays an important role in the Head and Shoulders Top, it plays a crucial role in the Head and Shoulders Bottom. Without the proper expansion of volume, the validity of any breakout becomes suspect. Volume can be measured as an indicator (OBV, Chaikin Money Flow) or simply by analyzing the absolute levels associated with each peak and trough.
Volume levels during the first half of the pattern are less important than in the second half. Volume on the decline of the left shoulder is usually pretty heavy and selling pressure quite intense. The intensity of selling can even continue during the decline that forms the low of the head. After this low, subsequent volume patterns should be watched carefully to look for expansion during the advances.
The advance from the low of the head should show an increase in volume and/or better indicator readings, e.g., CMF > 0 or rise in OBV. After the reaction high forms the second neckline point, the right shoulder's decline should be accompanied with light volume. It is normal to experience profit-taking after an advance. Volume analysis helps distinguish between normal profit-taking and heavy selling pressure. With light volume on the pullback, indicators like CMF and OBV should remain strong. The most important moment for volume occurs on the advance from the low of the right shoulder. For a breakout to be considered valid, there needs to be an expansion of volume on the advance and during the breakout.
Best of the Blogs
Scanning and identifying the best blog entries every hour
- John Lewis Lied: History Reveals He Did Not Attend George Bush's 2000 Inauguration | ZeroHedge
- I HaVe A DRoNe... | ZeroHedge
- Video Exposes Anti-Trump Group Plans To Shut Down DC Bridges And Highways With "Clusterfuck Blockades" | ZeroHedge
- Rally in Oil Continues on Global Cues, Saudi Cut | Financial Sense
- New York Times Warns "Budget Cuts Are Coming", Will Invest $5 Million To Cover Trump | ZeroHedge
- Oil Prices Boosted By Struggling US Dollar | Financial Sense
- Size Matters - No Country Should Be Bigger Than This | ZeroHedge
The most relevant financial news and articles from the Internets
- Here’s the $5.3 million mansion the Obamas will live in after the... | Business Insider
- The US Air Force spent $387,000 to make the lobby outside a 3-star general's office... | Business Insider
- American Apparel denies reports that it's imminently... | Business Insider
- Apple's iPhone battery shutdown issue isn't going away (AAPL) | Business Insider
- 'I got out of the El Chapo business': Why a high-profile Hollywood... | Business Insider
- 2012 Honda CR-V | BusinessWeek
- Travis Kelce blamed a ref for the Chiefs' playoff loss and said he shouldn... | Business Insider