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Commodity Trading Discussion Forum

Re: S&P/Using a 34ema/50ema Cross Over/Maneca

Posted By: Trades
Date: Friday, 3 July 2009, at 7:25 p.m.

In Response To: Re: S&P/Using a 34ema/50ema Cross Over *PIC* (Maneca)

You're welcome. Head and Shoulders formation patterns are very complex taking in a lot of trading. If you look for them you'll find them all over the place almost as much as Wedges. While the pattern itself is bearish at a glance there are rules attached to patterns that need to confirm the pattern. Head and Shoulder patterns need to see high relative volume on the head compared to the left shoulder and then a lower rally on very low weak volume on the right shoulder. Even then price needs to cross below the neckline (or above on a bullish pattern) and hold below and then follow through lower to confirm. Then you have a pattern that suggests a price drop amount measured from the top of the Head to the neckline below that same neckline. I don't care for complex patterns like the H&S overall as they are often just a part of a bigger picture. When you take apart an H&S all you have is a nice uptrend on the left shoulder and again on the head with good rising volume which is just a nice bullish uptrend confirmed with higher volume. Then the right shoulder is lower suggesting weaker demand on lower volume. The pattern just isn't that bearish until it breaks down below the neckline and confirms. Price can turn around and rally again higher and all you have is another somewhat H&S pattern that never followed through. Sorry to go on about it but that's what I have learned over the years going over patterns and their rules etc. You just can't go by the pattern alone without confirming the rules associated with them. Note on your chart no high volume on the head. Price is king and from what I'm looking at a break below 880 would suggest a drop back to 790-800.

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