S&P 500 Working on a Potential Inverse Head and Shoulders Formation

kdkboy

A potential inverse head and shoulders chart pattern is currently under formation in S&P 500 after yesterday’s price action. If this pattern finally forms it will signal another rally, possibly to a 4-year high, but a few important obstacles must be cleared first.



The left shoulder of the pattern under formation is at the low of last August, the head is at the October low and the right shoulder at the low of last Friday. What is most interesting is that the neckline of this potential formation is an upward slopping line NL that meets the price axis at 1,340. This means that by the time this pattern is confirmed the move to a 4-year high will be completed for the most part. Thus, it doesn’t leave too many options to risk averse technical traders .

The first important resistance levels is at 1,200 and  the next at the 30-day simple moving average currently at 1,231. After that there is strong resistance near the 200-day simple moving average currently at 1,267. Then, of course, 1,300 – 1,320 is an area of resistance with a last obstacle found at the up-trendline NL near 1,340.

As I have noted before, all chart patterns are either reversal or continuation formations. For this particular one under formation, turning into a reversal pattern that will lead to a new 4-year high requires overcoming all the obstacles just mentioned and maybe more that will emerge along the way. It won’t be an easy rise but by studying price action it seems that some are already betting on this scenario. Of course, that doesn’t mean that they are right.  It may just be large funds that place a very small bet on this scenario as a percentage of their net asset value.

Have a nice trading day~