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Friday, May 6, 2022

Market Update 5/6/2022 Bearish Head & Shoulders Patterns, and The True H&S Pattern

 Bearish Head & Shoulders Patterns, and The True H&S Pattern 

Yesterday we saw stocks give back all the gains from the fed relief rally, and more, but we're only retesting the recent lows, and short squeeze season is upon us. 

But today I want to talk about H&S patterns, and if you follow the FinTwit community I'm sure you've seen this one. 




This twitter user has over 400k followers, and can't even identify a pattern, or draw one correctly. This is great news, for those of us who know what we're doing, because we can use the general public as a contrarian indicator!   

Even though I pointed out this pattern on Tuesday, I can tell you, it's not a reliable pattern. It's also drawn incorrectly, as the neckline should be right sloping.

Of course now you see this pattern being tweeted ad nauseam.... 

What's wrong with this pattern? If you have to ask, then you haven't done your home work on Head and Shoulders patterns.  Chart School Head and Shoulders stockcharts.com 

1. For one, the duration (timeline) is too long. Should be more like 5 months   

2. This is only 1 pattern, on one index. Again you haven't done your home work!  

3. It's actually a contrarian indicator, because the lowest intelligence traders are pointing to it.

 This tweet also got 2 likes, and that's a bullish contrarian indicator. 

I showed you the correct EW pattern; the same one I've been pointing to for over a year now? 

I even pointed it out again, in last weeks contest - to win free entry into our private twitter feed -  but nobody who follows this blog could even tell me what pattern is called! lol 

I shouldn't laugh, because this experiences just proves that I'm not getting through to 99% of my audience, and wasting my time here.   

Market Update 4/26/22 - A Chance To Win FREE Entry INTO 3XTraders Private Twitter Feed! 


That contest has since ended, as it has become clear to me that traders would rather be bearish than learn about charting, and trading, or even win on a consistent basis. Traders would rather rely on their gut instinct, and hope they win, even though that is a losing strategy! 


The true H&S pattern


The true H&S pattern can be found on a couple charts - and the duration is correct 

1. On the $VIX - this a super-bullish indicator for the broader market 





2. The Dow - I've blogged quite a bit on the Dow this year, and for good reason. It's not a leading indicator, so it still needs to outperform. After all, we're not in a bear market, as I would define it - lower lows, followed by lower highs. I mean, you could point to China, or Tech, or some other obscure sector, and conclude that they are trending bearish, but not the broader market. Remember the fake bull market is a balancing act. Remember back when Obama took office, it was healthcare, that lead, and if Romney had won, he was going to sell the same idea....   

3. What about the Airlines? I've pointed to that bullish inverse H&S many times!  





4. The $SPLV - this is the low volatility $SPX. While it's not technically a true (inverse) H&S pattern, it has some very similar characteristics.... 


There is a bearish H&S pattern on the shorter term $SPX, but again, the duration is wrong (too short). 


As you can see there's more that goes into technical analysis, then just cherry picking patterns you like, while ignoring the rules that govern certain patterns. 

2. It takes quite a bit of experience to differentiate when you're faced with conflicting patterns, as well as to have the discipline to not trade, when you're not sure. That takes discipline!   

Good Luck, AA 


A $49 donation still gets you 50% off (discounted) access for an entire month @3Xtraderslive. 

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