Head & Shoulders Bearish Reversal Forming In SPX Short-Term Data

By Christopher Diodato

The market is once again in high spirits this morning, with hopes that the Bernanke will once again dump easy money on the American public.  The technicals are suggesting, however, that any rally will be short lived.  Specifically, the S & P 500 is tracing out a reversal pattern called a “head and shoulders top.”

If the S & P 500 can break above the 1420 level, this pattern would be considered “busted,” but a break below 1395 would activate a sell signal with a target of 1370.  Besides the price action, volume (not available on the chart) also shows a perfect reversal personality, with lower volume on each advance and higher volume on each of the declines.  The RSI "sell mode" note is based of a system I created that has given backtested returns of 300% on ten different markets in the past decade.

I’ll be looking forward to the speech at 10, but don’t see it becoming much of a market event.  Some major market pivots occur next Thursday, so we have three choices.

Happy trading!

~Chris Diodato

Metrotrader (D) is one of the few practicing CMTs (Chartered Market Technicians) in the United States . The CMT certifies his knowledge of market timing and risk management approaches. He tends to look for broad market moves and take advantage of them with index funds. The strategy he principally uses is mostly quantitative, and, tested, and has avoided or capitalized on every major recession since the 1940s. He says the best way to make money is to avoid losing it in the first place.

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