In my opinion the head and shoulders pattern is one of the most reliable topping patterns out there. Much more so then bullish engulfing patterns, or dojis, cup and handle patterns, or double bottoms.
That is because the head and shoulders pattern represents the changing thought process in the stock market over an extended period of time that ultimately leads to a reversal in the price action in the opposite direction. So that when it does break the neckline, there is a better chance than not, the market is going to play out the pattern at hand without any compromise.
We have that once again, a head and shoulders pattern forming – this time on the hourly chart of SPX. The previous one that played out in mid-to-late April fulfilled its potential and if this one does the same, you are looking at a move down in to the 1960’s-70’s on the S&P 500.
So there is a lot at stake here, and the right shoulder really hasn’t even begun to materialize – it just has some strong potential to do so right now.
Here it is then, look at it, marvel at it, but most importantly be aware of it and adjust your trading accordingly.
