Monday, June 23, 2008

Massive Head & Shoulders (Top) on Dow Weekly

This is a pattern that has been in the making for a very long time. The Dow Jones has formed a lovely looking head and shoulders top on the weekly time frame with a gigantic price scale. Using the measure rule (usual method), you get a target of 9,200 once it closes a week out below roughly 11,700. Depending on how you like to draw your neck line, you might already think the pattern has completed because last week the Dow made a new 52 week closing low which was below all weekly closes in the H&S. In my view the Dow looks extremely bearish in the long term and any rallies should continue to be sold.

Not all charts look as miserable as the broad market. Below I've got a drilling stock NE that my friend Stewart (aka ChicagoStock) suggested. There was a nice symmetric triangle breakout at the end of March and the target from that was reached last month. After a period of consolidation this one may be ready to blast higher for a few more months. There seems to be some support near the rising 50 dma, so I would be watching the $61 area for an entry.

And by the way, that massive head and shoulders pattern on the dow completed by any measure... This is not a good time to be owning US stocks.

Disclosure: I have no positions in NE or DJIA

1 comment:

pythagoruz said...

I should note that in the short term the dow is very oversold, so I'd wait for a rally to sell/short into.