S&P Below 1000? Sure It Can …
I’m not one for wild predictions but the whole point of chart patterns is that they do give us a clue as to what could happen next.
Our favourite patterns involve flags and breaks of support and resistance. We gravitate to these patterns becuase they give us the ability to construct a trading plan around them.
Other chart patterns exist that can give us a good insight of where the markets want to go. One such pattern is a “Head and Shoulders”. With the Head and Shoulders a high is followed some bars later by a higher high, and that is subsequently followed some bars later by a lower high, thereby creating the image of a head with shoulders either side.
The idea is that a Head and Shoulders is a bearish pattern, heralding a down move that some suggest can be pre-measured. Whatever the case, it’s considered to be bearish.
Now, let’s look at the S&P in two time frames and let’s see what we think …
SPY – Daily Chart
In this chart you can see the Head and Shoulders that formed on the daily chart between February – April and July. Note that the OVI turned sharply negative toward the end of July just before the big fall.
Let’s now look at the SPY monthly chart:
SPY – Monthly Chart
Looks similar, doesn’t it? Which therefore does not bode well for the S&P over the next few months (or sooner). On this basis we could (and should) easily break 1000 to the downside, and in an extreme situation even get down into the 600s. Now that would be an extreme from which we’d look to be buying hard. But one step at a time folks. Let’s see how this plays out first. Remember … TRADE WHAT YOU SEE!
Guy