Hello again. This is Gary from Biiwii, back again after having shaken off the cobwebs that result from writing an intensive newsletter, NFTRH on the weekends.
In this week's letter, one of the themes was a possible scenario for the broad market as represented by the S&P 500. In this case I used a 60 minute chart to identify a short term scenario revolving around a possible Head & Shoulders topping pattern. So far, so good.
Here is a fresh chart showing the S&P's progress. I had originally thought the lateral support of 1020 would provide a nice level for the neck line of the would-be H&S. As it turns out, we broke out of the short term downtrend channel a bit higher, which alters the analysis only slightly from what was presented over the weekend.
The upside tolerance of the analysis is 1080, as represented by lateral visual resistance. Any higher and the pattern is in trouble. At new highs, the pattern is kaput. But either way, the bounce from around 1020 was strongly expected and fazes me not, despite several bearish positions on various markets like the SPX itself, China, oil, euro, real estate and financials. That is because my gold stock and UGL longs are more than making up for the effect on bearish positions.
The plan is to watch the story told by the potential H&S top and either add short if it remains intact, or go back to the drawing board if the bulls somehow negate its potential with new highs. For now, I will assume we are going according to plan.
A break of the neckline brings on a measured target of 955, which is not the end of the world for the bulls and in fact could be construed as a healthy pullback. That level is the top of a zone of strong support dating back months, so I think it is unrealistic to get overly bearish in a 'world is ending' kind of way, although when you are talking a macro Ponzi scheme, you never know.
But for now, we are micro-managing the short term and the above represents one possible road map: Relief rally failure at or below 1080, decline to and eventually through the neck line, bringing on a measured target of 955.
Good luck out there and thank you again Tim for a forum on one of the relative few blogs I respect in an unmitigated way in a sea of financial market stuff floating around out there.
