Leading Off… Head & Shoulders is for flakes… not the markets

Tim Reazor
Chief Investment Strategist
NorAm Asset Management

If you’re bullish on the markets you’re feeling really nice and cozy.  That’s just what the markets want you to think.  They’re like the sweet smelling Venus flytrap…. the common housefly doesn’t stand a chance again this alluring temptress.  So what does this have to do with you?  Well, I think the market is laying down a trap… it’s sucking you in, making you think things are nice and rosy, but this could in fact be a trap.

I’m thinking this way because a bearish technical pattern has set up on the S&P 500 called a head and shoulders.   As you can see on the chart below – the pattern is formed by three peaks – one on the left which is the first shoulder, a middle spike which is the head and a right peak or shoulder which has now formed after Tuesday’s close of trade.

When these patterns appear more often then not the right peak or shoulder will rise up to the levels of the first two peaks – resistance – and reverse lower.  This is why this is a bearish formation.

The S&Ps could power through the previous two highs and we’ll be off and running higher again.  The reason why I am concerned that there is another leg down coming is because to two factors.  Bonds rallied today.  Bonds and markets usually don’t rally together – when they do eventually bonds win – they will move higher and stocks will push lower.

The other factor is volume or the lack of volume to the upside.  Then moves lower have been on tremendous volume.  While the moves higher have been on low volume.  This signals a lack of conviction by institutional investors.

One more note.  We still have seven economic reports to get through this week.  Each of these alone can move the markets.

I’m not bearish, I’m not bullish, I’m nimble in the face of facts.

I hope that helps.  If you have any questions or want to talk strategy please email me – Tim.Reazor@NorAmAsset.com

If you’d like to take advantage of our trading and investing open house please let me know.  For the next three week , by appointment,  readers of my newsletter and listeners to the Wall Street Shuffle Radio Show are invited to visit our offices and trade and invest alongside the team.  I’ll be doing credit spreads most every week.  If you’d like to learn simply drop me a line.

Best Regards,

Tim

 

The information presented is for educational and entertainment purposes only.  Opinions and information expressed are based upon information considered reliable.  However, factors are constantly changing and should not be relied upon. You need to do and verify your own research.  

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