Upside Down Head & Shoulders 2009?

I’ve talked about an upside down head and shoulders before on this blog.  The classic head and shoulders is when the market (or any investment vehicle) makes a high falls, then later makes a new high, falls, and the 3rd and final peak is lower than the second and about in line with the first, hence the head and shoulders name.  Well, you also have upside down head and shoulders.  This is a positive formation that technicians watch.  We had a low on the Dow in early October around 8000 (left shoulder).  Then we rallied but failed and ultimately went to new lows until November 21st (head).  Then, we rallied until the new year around 9000 on the Dow.  We’ve since fallen back to 8000 yesterday and that may hold (right shoulder). 

Now, this may or may not happen.  We don’t really know until after the fact but it appears to be setting up that way.  One problem which I outlined yesterday is the fact that we weren’t fully oversold.  We didn’t get completely washed out where we could have a real long rally.  Secondly, the reversal we saw yesterday should have lead to some really nice follow through today and several times the market was in danger of finishing down.  Thirdly, the stock market is closed Monday for the Martin Luther King, Jr. holiday.  Typically, you see some locking in of gains before a 3-day weekend.  Since we had a negative week, those that were short locked in gains today before the long weekend which is why we finished up 70.  That leaves me with my current position which is lighter on the shorts than I was at the beginning of the week but I still have most of my position because we didn’t get fully oversold and the rally was very mediocre today to say the least.

Have a nice weekend.


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