The Market could be topping

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thechartpatterntrader

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While the Dow & SP 500 (Large Caps) managed a breakout to new highs, the Smallcaps and midcaps have failed to break above their previous June highs. They have reversed right off the previous June highs. This is troubling in that we could now have the formation of a double top pattern. If those indices build momentem a breakout the rally continues. But it appears that they could be ready for a breakdown. Their weekly charts suggest that the advance may conclude and therefore the market is probably closer to a top than a bottom here.

Thesubprime mortgage debacle along with rising energy prices could likely be the thing that ends the bull market. We could still go higher for the short term, but the writing is on the wall. Have an exit strategy in place. Take a look at the Small & Mid Cap charts below and you'll see what I mean.

Smallcaps:
http://stockcharts.com/h-sc/ui?s=$RUT&p=D&yr=1&mn=0&dy=0&id=p39046365498&a=83855879

Midcaps:
http://stockcharts.com/h-sc/ui?s=$MID&p=D&yr=0&mn=7&dy=0&id=p90164368866&a=83852817

The best of trades,

The Chart Pattern Trader
 
It will be interesting to see what happens this afternoon. There is a divergence between the VIX and the sell out in stocks at this time. The VIX bounced off resistence and headed down which should be a plus for stocks. The VIX also gapped up which might be a plus for a rally tomorrow if it gets filled. . Maybe M3 money will kick in this afternoon squeezing the shorts. The DJTA still looks like it's rolling over, but has found temporary support. The interesting thing is reading the allocation posts, the majority of members are still somewhat bullish and very few are locking in some profits. I guess Tom said it best.." The dip buyers will be right - until they're not. When that will be, who knows?"

http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=VIX
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=DJTA
 
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Another sign of topping? Here's something to watch in the coming weeks or months. There is a possibility that the Dow is in the process of forming a 'Head and Shoulders Top (Reversal) Pattern'. For the Dow ( if this is a H & S pattern), the Left Shoulder started June 8th and ended June 27th. There was an increase in volume on June 15th, needed as a sign of a possible Left Shoulder pattern. The Head started June 28th, peaking on July 19th with an increase in volume on July 20th, along with a decline from the peak of the Head. If a Right Shoulder starts to develop, " final confirmation comes when volume further increases during the decline of the Right Shoulder " ( quote from H&S link). We can now watch for a Neckline pattern for the start of the Right Shoulder ( a short window buying opportunity until the peak of Right Shoulder, which should be a selling point).

http://stockcharts.com/school/doku...._analysis:chart_patterns:head_and_shoulders_t

http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=DJIA
 
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I know a couple guys that have no necks, just heads and shoulders. Hope I don't miss the buying opportunity.................:blink:
 
For the S&P Head & Shoulders pattern I was looking to buy around 1490, looks like at least before 12est its holding near there.:nuts:

I hate this 12est EFT time. Catch a falling knife.
 
vectorman said:
Looks like the DOW Head and Shoulders pattern still possible. Dow may be right near a neckline support. Next week will be the test.

http://finance.yahoo.com/q/bc?s=^DJI&t=3m&l=on&z=m&q=b&c=

http://stockcharts.com/school/doku...._analysis:chart_patterns:head_and_shoulders_t
Click to expand...

Looks like the right shoulder is starting to form off the neckline.


View attachment 1821

I can see where this statement may come into play soon.:D

http://www.tsptalk.com/mb/showpost.php?p=107161&postcount=51
 
nnuut said:
If that's a Head And shoulders someones crippled! IMHO:worried:
Click to expand...

You may be right. Sometimes one can look at the charts and see what they want to see. I hope I'm wrong, would love to see the trend keep going up.:)

" The head and shoulders pattern is one of the most common reversal formations. It is important to remember that it occurs after an uptrend and usually marks a major trend reversal when complete. While it is preferable that the left and right shoulders be symmetrical, it is not an absolute requirement. They can be different widths as well as different heights. Identification of neckline support and volume confirmation on the break can be the most critical factors. The support break indicates a new willingness to sell at lower prices. Lower prices combined with an increase in volume indicate an increase in supply. The combination can be lethal, and sometimes, there is no second chance return to the support break. Measuring the expected length of the decline after the breakout can be helpful, but don't count on it for your ultimate target. As the pattern unfolds over time, other aspects of the technical picture are likely to take precedence. "

http://stockcharts.com/school/doku...._analysis:chart_patterns:head_and_shoulders_t
 
Well the right shoulder is complete, volume was up on the descent. The DOW is testing and retesting the neckline. Look for a major breakout or breakdown shortly. Hopefully to the upside. Looks like in the short term the VIX might move down, giving us a rally. http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=VIX

" Right Shoulder: The advance from the low of the head forms the right shoulder. This peak is lower than the head (a lower high) and usually in line with the high of the left shoulder. While symmetry is preferred, sometimes the shoulders can be out of whack. The decline from the peak of the right shoulder should break the neckline.
Neckline: The neckline forms by connecting low points 1 and 2. Low point 1 marks the end of the left shoulder and the beginning of the head. Low point 2 marks the end of the head and the beginning of the right shoulder. Depending on the relationship between the two low points, the neckline can slope up, slope down or be horizontal. The slope of the neckline will affect the pattern's degree of bearishness: a downward slope is more bearish than an upward slope. Sometimes more than one low point can be used to form the neckline.
Volume: As the Head and Shoulders pattern unfolds, volume plays an important role in confirmation. Volume can be measured as an indicator (OBV, Chaikin Money Flow) or simply by analyzing volume levels. Ideally, but not always, volume during the advance of the left shoulder should be higher than during the advance of the head. This decrease in volume and the new high of the head, together, serve as a warning sign. The next warning sign comes when volume increases on the decline from the peak of the head. Final confirmation comes when volume further increases during the decline of the right shoulder.
Neckline Break: The head and shoulders pattern is not complete and the uptrend is not reversed until neckline support is broken. Ideally, this should also occur in a convincing manner, with an expansion in volume.
Support Turned Resistance: Once support is broken, it is common for this same support level to turn into resistance. Sometimes, but certainly not always, the price will return to the support break, and offer a second chance to sell.
Price Target: After breaking neckline support, the projected price decline is found by measuring the distance from the neckline to the top of the head. This distance is then subtracted from the neckline to reach a price target. Any price target should serve as a rough guide, and other factors should be considered as well. These factors might include previous support levels, Fibonacci retracements, or long-term moving averages. "
( some info from http://stockcharts.com/school/doku...._analysis:chart_patterns:head_and_shoulders_t)


http://stock-market-101.com/
http://www.themoneyblogs.com/amateu...ulder-top-patterns-in-the-dow-and-nasdaq.html
http://www.signalwatch.com/markets/markets-dow.asp?Date=08/10/07
http://www.financialsense.com/editorials/kleinman/2007/0625.html
 
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Everybody now, sing along... "Head...Shoulders...knees and toes....knees and toes." :D

*Neckline Break: The head and shoulders pattern is not complete and the uptrend is not reversed until neckline support is broken. Ideally, this should also occur in a convincing manner, with an expansion in volume.
*Support Turned Resistance: Once support is broken, it is common for this same support level to turn into resistance. Sometimes, but certainly not always, the price will return to the support break, and offer a second chance to sell.

http://stockcharts.com/school/doku...._analysis:chart_patterns:head_and_shoulders_t

I really really hope I'm way off base on this one. http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=DJIA
 
Looks like the SPX is about to find support at a possible neckline in a S&H pattern. We may move up soon to see if a left shoulder will be formed.

This is want I'm seeing in some post.
Capitulation: The act of surrendering or giving up.
Despondency ( despondent ): feeling or showing profound hopelessness, dejection, discouragement, or gloom.

This would be a great day to get one last big push down with some buying in the last few hours instead of a sell off. Friday may be a very interesting day, the last several have been negative and that is what some have come to expect. But in the end nobody knows what the market will really do.

View attachment 1905

View attachment 1906
 
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This may not turn out to be anything, but its has been interesting and a learning experience to see if something will develope.

Back to a possible Dow Head and Shoulders pattern. Still looks like the requirements are still showing up. If I'm off base just feel free to post in, you will not hurt my feelings.

View attachment 1936

*Support Turned Resistance: Once support is broken, it is common for this same support level to turn into resistance. Sometimes, but certainly not always, the price will return to the support break, and offer a second chance to sell.
*Price Target: After breaking neckline support, the projected price decline is found by measuring the distance from the neckline to the top of the head. This distance is then subtracted from the neckline to reach a price target. Any price target should serve as a rough guide, and other factors should be considered as well. These factors might include previous support levels, Fibonacci retracements, or long-term moving averages.

http://stockcharts.com/school/doku...._analysis:chart_patterns:head_and_shoulders_t
 
DJIA looks like a H&S. However, we've bounced off the bottom target already. That H&S on EFA is a stretch. Is that idea wishful thinking on your part?
 
Bullitt said:
DJIA looks like a H&S. However, we've bounced off the bottom target already. That H&S on EFA is a stretch. Is that idea wishful thinking on your part?
Click to expand...

No, not wishful thinking just an observation in which I hope I'm wrong. The Dow bouncing off the target price is what it's suppose to do in a true S&H pattern. The next test is to see if it can break back up through the neckline after several attempts or fail starting a new trend (down).

http://stockcharts.com/school/doku...._analysis:chart_patterns:head_and_shoulders_t
 
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