When I looked at this H&S Top in Morgan's Hourly Chart, I assumed that the Daily chart would show a more "compressed" version of the pattern, which it does, and planned to measure the pattern before the open today to get the target. Unfortunately, I found that we've got conflicting data.
The daily chart shows that Thursday's high was 28.90, two pennies above the 28.88 failed retest high at the neckline (white arrow) in the Hourly Chart. If my data, which I download from Reuters, are correct, that means that Pattern #4 in the Hourly Chart, the "possible" Bear Flag/Rising Wedge (pattern in red) is invalid.
It also would mean that we had a minor "shakeout" of the shorts at the 28.90 high. Anyone using the 28.88 failed retest high as a "hard stop" got shaken out of their position by two pennies. That's one of many examples why I use "mental stops," rather than place a stop order. "They" seem to like to bust stops by a few pennies, which I suspect is what happened if the 28.90 high is correct.
Basis the daily chart, the neckline was at 28.9166 when the first failed retest occurred. The neckline currently is at 29.20 for today, June 22, and rises at the rate of 0.07163 per session, so it will be at roughly 29.27 on Tuesday.
Alex asked an excellent question at the weekend about whether or not an upside takeout of 28.88 would invalidate the breakdown, and made a great observation about the fact that this neckline is rising. Theoretically, Morgan could move higher and "chase" the bottom of the pattern, but technically, as long as it remains below the neckline, it's still a valid broken H&S Top, and the downside target of 25.27 still is IN PLAY. That's why I said that a takeout of 28.88 would call the breakdown into question. It wouldn't be invalid, but I'd have to question "what's going on here?" after we've already had a failed retest. Morgan "should be" moving down off that.
I haven't decided whether I'll short this or not. On a short like this, it's up to the individual where they want to put a stop, but personally, I wouldn't hold a short position on any CLOSE above the neckline, and we've got a great example in this chart of WHY I wouldn't.
Look at the Rising Channel (in blue) and the "nested" Symmetrical Triangle (in purple) back in April. I really like those "nested" patterns, and they usually give strength to a breakout or a breakdown, but this is a perfect example of how there is no "always" in the stock market.
The "nested" patterns broke down on a CLOSING basis on April 23. Morgan went down for three more days after that. On April 29, however, Morgan closed back above the lower trendline, and well inside the channel. If we showed the chart only to the close of that session, it would be a great example for the "Game Simulator." What would we do with a short position at that point?
If we hold short, the next session "looks like" a Bearish Inverted Doji Star Hangman, and it "looks like" it closed right at the botoom of the Symmetrical Triangle (pattern in purple), so it "looked like" it was still bearish.
UGH!!!!!! If we shorted the DOUBLE pattern breakdown, and didn't cover the CLOSE back inside the Channel, we would have been squeezed for close to a 50% loss at the recent 32.00 high. Horrible.
Sometimes, there is a one or two day close back inside a pattern after a breakout or breakdown, then the breakout or breakdown continues and works out fine. But, you can see from this example why I don't like to play around with CLOSES back inside patterns after a breakout or a breakdown. I'd rather throw it in, and re-enter later on if the stock gets back on track, rather than get squeezed half to death :(
Finally, the high of the Right Shoulder is 30.15 (horizontal red line). Classically, that NEVER should get taken out to the upside, or the pattern is invalid. We know that there's no "always" or "never" in the stock market, but I do agree that if a Right Shoulder gets taken out, the vast majority of the time, the pattern really is invalid.
5 comments:
The SDS is called Gap Up out of the Ascending Triangle. That's the pattern in orange in Charts #2 and #3 in Saturday's post.
The current indication is BID: 56.52 ... ASK: 56.53. If the SDS opens near there, then retraces roughly 50% of the gap from Friday's 55.60 close, that would be a retest the breakout at the top of the Ascending Triangle, the top of which is a validated trendline, validated by Friday's high of 56.11.
The Ascending Triangle breakout will put 57.52 IN PLAY, very near the 57.63 recent high.
56.11 - The most conservative of the three highs at the top of the pattern.
54.70 - Low of the pattern
56.11 - 54.70 = 1.41 points of upside on a breakout above 56.11.
56.11 + 1.41 = Target: 57.52 IN PLAY
melf
with regards to the S&P, all the downside targets get made and broken through. where is the next stop down? the neckline of the inverse h&s around 880?
Good Morning, Kevin,
Hey, you had a really nice day with your Goldman play. Nice going!
When a target gets MADE, it doesn't tell us anything at all about "what's next." The target only pertains to the move that we "isolated," so to speak, based on a particular pattern breakout or breakdown. Once it gets MADE, "we're done!"
We then want to look for areas of "possible" support or resistance, and then try to assess if it's minor support/resistance, or major support/resistance.
Yes, the neckline of the Bullish Inverse H&S, in the high 870's, would be the next major support area. That was a breakout of a 3½ month base, and it was a DOUBLE breakout because the Right Shoulder had a "nested" Symmetrical Triangle that also broke out, putting 918.30 IN PLAY.
The neckline breakout was successully retested at the 878 - 879 lows of the Symmetrical Triangle (Black #2 and Black #4 in the daily chart), so that neckline is VALIDATED support, which enabled The Bulls to break out of the Symmetrical Triangle and take it SPX 956.
The Bulls "own" 878-879 and The Bears want it badly, so that's major support that The Bulls want to defend.
thanks melf
i think i see a h&s on GS on the 2 minute. target in the 136 range. what do you think of the pattern?
Hi, Kevin,
Sorry, I just saw your post. I only have 1-Minute and 5-Minute charts from Scottrade, but I can see what you mean.
1-Minute, 2-Minute, 5-Minute charts can be tough to play, particularly the very short-term charts. Off the cuff, after just coming off a low at Monday's close, an immediate H&S Top in a 1-Minute or 2-Minute chart isn't likely, but the important thing always is to set up a good risk:reward. Do you stand to make more than you stand to lose? If a Right Shoulder gets taken out to the upside, you probably want to stop it out.
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